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Case Study: Netflix: Failure to Communicate

Kristin Wiggins & Stephanie Wirtz
Central Michigan University Global Campus

Kristin Wiggins & Stephanie Wirtz

Netflix began as a movie and television show rental business and has since expanded into the
leading DVD-by-mail and online video streaming company. In 2011, Netflix began a downward
spiral that lasted the entire year. People were surprised and upset at the drastic price increases
that were announced as they were being implemented. After two long months and practically no
explanation, Reed Hastings-CEO, finally issued an apologetic email to their subscribers. Instead
of just addressing the issue at hand, Hastings announced yet another change which created even
more negative publicity. The issue of communication was a big problem for customers. Netflix
apologized and worked on their communication issues. Business is now increasing. This case
study is one for all organizations to explore and learn how intangible functions like strategic
planning and customer communications can have noticeable results.good start- what option do
we have here

Kristin Wiggins & Stephanie Wirtz

Netflix History and Communication Issues
In 1997, Reed Hastings and a few colleagues formed Netflix. Its subscribers paid to have
movies delivered to their homes through the mail and they had access to stream TV shows and
movies to their televisions, mobile devices, or computers. By 1999, Netflix had over one million
subscribers and later became the world's largest online movie rental company. In the fall of 2011,
Neflix announced that the video streaming service and they DVD-by-mail service were going to
be split into two different companies. Qwikster would be the new name for the DVD delivery
service. In response to customer outrage and confusion, the Netflix CEO rescinded rebranding
the DVD delivery service Qwikster and re-integrated it into Netflix (Hoffman, 2013).
Nevertheless, due to the Qwikster debacle and the price hike, the company lost 800,000
subscribers, its stock price dropped seventy percent in four months, and managements
reputation was battered (The Inside Story of the Price-Hike Train Wreck, 2012) . Despite this
setback, Netflix continued to believe that by providing the cheapest and best subscription-paid
commercial-free streaming of movies and TV shows, it could still rapidly and profitably fulfill
its envisioned goal to become the world's best entertainment distribution platform (Hoffman,
The whole Netflix fiasco shows just what can happen when a firm does not communicate
with its customersright. Netflix drew immediate criticism from subscribers and the media for
raising its monthly rates by nearly sixty percent, and hundreds of thousands of people canceled
their subscriptions as a result (Jacques, 2011). What many found disheartening more than the
subscription changes themselves was the way Netflix communicated about them. Kinicki and
Fugate (2012) have defined communication as, The exchange of information between a sender
Formatted: Underline
Formatted: Underline
Kristin Wiggins & Stephanie Wirtz

and a receiver, and the inference (perception) of meaning between the individuals involved (p.
310). Netflix offered no apology for the price increase during the first two months of the
debacle, even while watching their stock prices drop more than 50 percent (Jacques, 2011).
Hastings finally apologized for the unclear announcement in his September 18
blog post only to
further explain that the DVD-by-mail service would be called Qwikster and would be treated as a
separate company (Hastings, An Explanation and Some Reflections, 2011).
This did nothing to calm the rage of consumers it did, however, add fuel to the fire as
angry subscribers took to social media to express their outrage. The hashtag, #DearNetflix, was
the fifth highest trending topic on Twitter following the initial July announcement (Tsukayama,
2011). The Netflix Facebook page received more than 20,000 comments mostly negative
about the price hike within the first few days (Tsukayama, 2011). In fact, they received more
than 9,000 Facebook comments within the first six hours and 41,000 comments within 26 hours
(Mack, 2011). Users had to like the Netflix Facebook page in order to leave comments so the
popularity of the page suddenly soared as people rushed to vent their frustrations (Mack, 2011).
Netflix did not remove the negative remarks, but there were no responses or comments from
Netflix either via Facebook or Twitter and they failed to directly comment on the outrage. The
silence from the company further upset the customers, especially since Netflix built a solid
reputation for service and understanding consumers.
Customer service begins and ends with communicationtrue. Effective communication is
the most difficult part of any working relationship.says who If one cant share ideas, thoughts, or
reasonings, the relationship will suffer and possibly stop to exist. Hastings poor communication
skills contributed to the price increase debacle because instead of interacting with customers in
Kristin Wiggins & Stephanie Wirtz

an open and accessible manner, Hastings came across to them as standoffish, and he seemed to
be indifferent to their concerns.
Netflix had to deal with external forces for change. The force that persuaded them to
change was social pressure. After the loss of 800,000 subscribers and countless social media
comments, Netflix learned that they must improve communication in order to improve customer
service. In a blog post, Hastings said When Netflix is evolving rapidly, however, I need to be
extra-communicative. This is the key thing I got wrong" (Feldman, 2012). Hastings created a bad
impression by overcommitting the organization and waited to deliver the news at the last minute
(Kinicki & Fugate, 2012). An interesting observation
In response to the bad impression and poor communication, Hastings delivered an
apology. I messed up. I owe everyone an explanation. Many members felt we lacked respect
and humility in the way we announced the separation of DVD and streaming, and the price
changes. That was certainly not our intent, and I offer my sincere apology" (Feldman, 2012).
This was an individual apology meant to encourage followers to forgive and forget (Kinicki &
Fugate, 2012 p. 357). This was the first step that Netflix took to build and repair the trust of its
customers. And an important one
Customers are more connected today through social media. They can use this platform
for telling their followers and friends how wonderful a company is. They can also use social
media to magnify their anger when things go wrong. Before delivering bad news or making huge
changes that will impact a large section of customers, organizations need to make sure that they
have a social media strategy in place to communicate such changes, address the questions
concerns and concerns of their customers, and allow their customers to provide feedback.
Netflix was able to do this through their blog site, and the company received an overwhelming
Kristin Wiggins & Stephanie Wirtz

response from its customers. It was clear the customers were not happy with the price change.
However, Netflix should have developed a social media strategy to engage their customers prior
to the big announcement. If they would have included that as part of their strategic planning, the
company would not have suffered with the loss of customers in the way that it did.
Netflix has since rebounded and created more media opportunities for customers
including the addition of Disney.
The Internet video company's three-year deal for exclusive rights to show Walt Disney
Co. movies as little as seven months after their theatrical release is a big step forward in
its goal to compete directly with premium cable networks HBO, Showtime and Starz.
(Gottfried, 2012).
With the addition of new media, the public apology and the increase in its customer service,
Netflix is well on its way to enhancing their empire in the streaming video market. Kristin and
Stephanie- nice job on paper, good documentation and progression of events are explained- 15

Kristin Wiggins & Stephanie Wirtz

Feldman, E. "Growing Pains at Netflix: The Qwikster Issue of 2011." Gale Business
Insights: Global Case Study Collection. Detroit: Gale, 2012. Business Insights: Global.
Web. 7 Apr. 2014.
Gottfried, M. (2012). Netflix seeks blockbuster in Disney. Wall Street Journal (Online).
Retrieved from http://0
Hastings, R. (2011, September 18). An Explanation and Some Reflections. Retrieved October 23,
2012, from
Hoffman, A. (2013). Netflix: Rebranding and Price Increase Debacle. Retrieved April 6, 2014,
Jacques, A. (2011). Netflix Customers Are Seeing Red. The Strategist, 23.
Kinicki, A., & Fugate, M. (2012). Organizational Behavior: Key Concept, Skills & Best
Practices, Fifth edition. Mc Graw Hill Education, New York, New York.
Mack, E. (2011, July 12). 'Dear Netflix': Price Hike Ignites Social-Media Fire. Retrieved from
Sandoval, G. (July 11, 2012). Netflixs lost year: The Inside Story of the Price-Hike Train
Kristin Wiggins & Stephanie Wirtz

Wreck. Retrieved April 8, 2014, from
Tsukayama, H. (2011, July 13). Washington Post. Retrieved December 6, 2012, from Netflix
Faces Backlash Over Price Changes: