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Monday, September 19, 2011

Netflix blooper costs shareholders big time

Netflix made a classic and foolish error when they decided to raise prices in a terrible economic environment, and now they are paying for it.  Their real problem is that they, for some reason I still cannot understand, do not offer their entire catalog in streaming format.  I canceled my subscription when they raise their prices because I couldn't get the DVD and streaming service together without paying close to twice what I had been paying for the same service before the price increase.  Obviously I was not alone.  They have lost an estimated 1 million customers since the price increase.

Worse yet, their exit survey did not allow me to explain why I was canceling, forcing my responses to fit within their preformatted questionnaire, which neglects to offer a response about pricing.  I think they have gotten the message now.  The real question is, will they reverse the price increase, make their entire catalog available for download, and most importantly, can they regain their lost customers if they do so?  Possible, if they act quickly, as Coke did when they stopped making real (Classic) Coke, and changed to "New Coke," which cause a worldwide negative reaction.  Coke admitted it screwed up, and immediately offered Classic Coke again.  Because of that quick response, some questioned whether it was a mistake at all, and a few to this day think Coke execs did it on purpose in what could have been the most brilliant marketing stunt ever.

I certainly wouldn't compare Netflix to Coke, an iconic product with a very powerful brand identity and generations of ferociously loyal customers.  But, I do believe that streaming entertainment content is what people want, and Netflix already has about 25 million customers.  If they act now, reduce prices, and get all of their content converted to immediate download format, I believe they can recapture their momentum, and their valuation.

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