Netflix's Price Increase: A Five-Star Decision?

Netflix's decision to increase prices by 60% sparked a wave of customer backlash and raised questions about the company's future. The article uses Netflix's own rating system to assess the situation, arguing that the price hike was necessary due to the differing economics of DVD rentals and streaming.

• The price increase aims to reflect the different costs associated with DVD rentals and streaming, making the streaming business model more sustainable.
• The decision to segment customers and charge accordingly is viewed as a necessary step to ensure profitability.

The Split: A Flawed Execution

Netflix's initial plan to split its business into two separate entities, Netflix and Qwikster, aimed for greater transparency and accountability. However, the execution was flawed.

• The announcement was poorly handled, relying on a blog post rather than a press conference or public statement.
• The chosen name, Qwikster, was hastily chosen and lacked any strategic value.
• The lack of a unified IT system for both Netflix and Qwikster created significant customer inconvenience.

The Reversal: A Lesson in PR

In light of the negative customer reaction and the stock price decline, Netflix reversed its decision to split the business. However, their communication about the reversal was once again lacking.

• Netflix's announcement regarding the reversal was handled through another blog post, further highlighting their lack of strategic communication.

Netflix's Marketing: A Major Bottleneck

The article emphasizes the significant role of marketing in a business's success, highlighting Netflix's failure to effectively manage its PR.

• The lack of proper communication and press engagement contributed to the negative public perception of Netflix's decisions.
• The need for a seasoned PR professional to manage communication strategies is emphasized.

Customer Segmentation: A Vital Strategy

Customer segmentation plays a crucial role in determining which customer groups are profitable and should be prioritized. Netflix's decision to focus on its streaming business model is an example of this.

• Netflix identified that a significant segment of its DVD-only customers are not profitable and may be better served by alternative services.
• The article uses examples of other businesses that have adopted customer segmentation, such as hypermarkets, magazines, and apparel brands.

Netflix's Future: A Balancing Act

The article concludes by emphasizing the importance of striking a balance between serving different customer segments and prioritizing those that align with the company's long-term goals.

• While Netflix may lose some customers due to its price increase, the company aims to retain its most profitable and engaged users.
• Netflix must learn from its recent communication missteps and invest in a strong PR team to manage future business decisions effectively.