marketing

Today I was looking at my business cases portfolio that I have prepared in the course of my part-time MBA studies at GWU School of Business and I noticed that I have not published any cases from my Marketing classes yet. So I found one of the sections I prepared for a group project on Netflix, Inc.: DVD Wars. Shortly after I posted it in the Business School Cases  section of the blog, I went to check out business headlines on CNNMoney only to find out that Netflx grabbed the top headline.  I had not followed the Netflix stock closely, so I did not know about the planned quarter results announcement for today. Speaking of coincidences and prescience .

Anyways, at the time of checking, the Netflix stock lost almost 30% of its closing price in the after hours trading. This was the result of their 3-d quarter results announcement, and namely the fact that the company lost  800,000 subscribers in the quarter, and forecast of loosing even more customers in the ongoing quarter.

All this commotion brought me to thinking of the brand loyalty. How far it goes, how far it can be stretched, and what are the resistance points after which real damage to the company bottom line starts?

For years Netflix has been praised for their innovation and revolutionizing the video rental business:

• Their movie recommendation algorithm was as much of the analytical marvel as the platform for quasi-social networking interactions of the movie buffs.
• Their queuing algorithm for DVD deliveries was another  example of business efficiency and analytical approach, which was praised by the industry analysts, and at least tolerated by the “frequent flyers” of the Netflixland who were shuffled from the top of the waiting list when they had too many new releases under their belt within a certain period of time.
• I personally met quite a few “Netflixitizens” who were so enthusiastic about the service and everything it entailed, it almost felt like they were some kind of the ‘intellectual elite’, privileged club members of sorts compared to “unenlightened Blockbusterians” and the likes. In a way, it reminded me of the unconditional love and adoration felt and expressed by so many Apple fans for the company and its products under Steve Jobs in the last decade.

All this strong following came under severe testing this past summer when Netflix was forced to raise their prices for both mail and streaming service by more than 50% in anticipation of their contracts re-negotiation with the content providers. This caused so-called “price hikes rage” manifested in stock price plummeting almost 20% in one day and the mass exodus of Netflixitizens from “the land of plenty”. Of course, they did not hesitate to fan out their frustration at the exit.

The price hike effect was further exacerbated by quick introduction and then removal of Qwikster service which raised further questions about  the company’s strategic vision or the lack of such.

So here comes the question of brand reputation and brand loyalty. How much can you get away with by capitalizing on, or exploiting, the customers loyalty? As Netflix CEO Reed Hastings wrote in a letter to shareholders: “We’ve hurt our hard-earned reputation, and stalled our domestic growth.” Obviously, the reputation is hard to build, and once built, the company can capitalize on it in a big way. But reputation is not something to be taken for granted, it needs to be continuously maintained and can be damaged quite easily by clumsy “elephant-in-the-china-shop”- like moves. As was the example with Netflix this past few months or Toyota recalls debacle last two years.

I believe they can recover, just like Toyota mostly recovered, just like Apple re-surfaced as the market leader in early 2000-s. But they need to be more in-tune with their own customers and their long-term strategy.

This situation with Netflix reminded me of another company and another CEO I had a post on recently – Harrah’s Entertainment and Gary Loveman. Both Hastings and Loveman seem to be very analytical in their approaches, but lacking in intuitive department. And, as the history shows, this misalignment can lead to rather costly mistakes.

As for my recommendations that I gave in the DVD Wars case, it appears that Netflix needs to put in order the basic 4 P’s of Marketing, before they embark on any alternative complementary strategies.

Ironically, I had to cancel my Netflix subscription two years ago when I started my part-time MBA program at GWSB, just don’t have time for movies anymore.

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