Netflix Giant Price Increase Causes Customer Relations Fiasco

My new name for Netflix is Netfux. If you are a Netflix customer who rents Blu-Ray DVDs, by now you have probably received an email from Netflix announcing a huge price increase for Blu-Ray DVD rentals. The increase is supposed to take effect on your next Netflix monthly statement, on or about April 27. This is the second time in six months that Netflix has added a Blu-Ray surcharge, and this time the increase is much greater. In my case (3 DVDs per month plan), after a $1 increase last October, Netflix wants to charge me an additional $3 per month. Based on my $17 per month rate ($16 before last October's surcharge), these surcharges amount to nearly 25%. That's not going to happen.

The large Netflix price hike makes no sense. Netflix states that the price for it buy Blu-Ray discs is higher than regular DVDs. But Blu-Ray is becoming the DVD standard. Additionally, as more customers buy Blu-Ray DVD players and opt for Blu-Ray discs, Netflix will purchase more and more Blu-Ray discs in relation to standard DVD discs. So, Netflix is trying to have its customers pay a lot more for its regular and replacement product.

Also, Netflix is a huge buyer of DVDs. It should negotiate better prices for Blu-Ray discs from its suppliers, instead of paying through the nose for Blu-Ray discs (if Netflix is to be believed) and simply passing on the costs to its customers. The planned Netflix price increase is also unjustified based on the paltry number of Blu-Ray titles (currently only about 1,300 out of some 250,000 DVDs, or .52%) that Netflix makes available. I'm not going to pay more than 20% extra per month for a product that I only receive one-half percent of the time.

Perhaps most importantly, we're in the depths of an economic recession, or even a depression. Many businesses, including airlines, restaurants, home builders, and stores, are lowering their prices in order to retain customers. It's insane from a business standpoint to raise prices by such a large amount in the middle of an economic crisis, and not expect to lose customers and revenue.

Finally, we know from the history of DVD prices that Blu-Ray prices will eventually come down as production increases. Note how Netflix makes no promise to lower its prices when the prices it pays to buy Blu-Ray discs declines.

The planned Netflix price hike is also abysmal from a customer relations standpoint. Just go to the Neflix blog and check out the more than seven hundred responses received in just 24 hours thus far to the price increase announcement from Netflix VP of Marketing Jessie Becker. Virtually all of the comments are from angry Netflix customers who say they are either downgrading their service, or leaving Netflix entirely. How does less revenue and an army of irate customers, including bad press on the blogs and elsewhere, grab you as a business plan?

If you don't want to pay the Netflix price increase, do what I did:

1. Write a comment on the Netflix official blog post. Tell VP Jessie Becker what a dumb and ill-timed idea the price increase is. Tell her that the amount of increase is way too high. Tell her that you plan to downgrade your service or leave Netflix altogether for a competitor (such as Blockbuster, RedBox, or DVD Express) if they try to push their full price increase through. I checked the prices at Blockbuster, and they are cheaper than Netflix's planned prices, with no Blu-Ray surcharge and the ability to rent from and return movies and video games to Blockbuster stores. That seems like a no-brainer to me.

2. Call Netflix at 1-888-923-0898 or 1-800-585-8131. Calmly tell the representative why their price increase is unacceptable. I called today and was told that Netflix is not negotiating price for "customer retention" purposes at this time. That, however, may change in the coming days or weeks. If Netflix does not offer to negotiate with you over the increase or wipe it out altogether, tell them you plan to downgrade to a lower level of service (or terminate your Netflix service altogether). Point out how it makes no sense for their price increase to result in less revenue to them as customers are downgrading or leaving altogether. Note that cancellation of your service takes effect immediately, so you can wait until just before your next billing date to do so.

3. If you have nothing left to say to Netflix by phone and have made your decision to downgrade or cancel your service, you can also do so at the Netflix website. I haven't done it that way, but hopefully there is a "Comments" section where you can explain why you are taking this action. If not, hopefully there is the ability to do so in the "Contact Us" section of the Netflix site.

4. If you're a zealous letter writer, send letters to Netflix's CEO and top officers. Their names are listed here. Netflix's corporate address, according to Hoover's Online, is:

100 Winchester Cir.
Los Gatos, CA 95032
Phone: 408-540-3700
Fax: 408-540-3737

5. Publicize your views about the Netflix price increase, and the steps you have taken to counter it, on your blog and in other media to which you have access. It's hard to overestimate the power of negative publicity.

Perhaps when enough people take these steps, Netflix will realize the tremendous error they made, and either change their plans, or, if customers downgrade and leave en masse, ask us to return at our previous level of service at or near the old rate. If not, Blockbuster will do just fine.

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Is Netflix Going the Way of AOL?

Netflix is posting notices on its website that it is experiencing a major shipping delay. Does this remind anyone else of AOL's fiasco during the mid-nineties?

The similarities between the current Netflix problem and the AOL debacle are striking. In particular, Netflix, for at least the second time, has been unable to fulfill its basic duty, as advertised, of sending customers dvds from their "queue" within one to two days of receiving a viewed dvd back from the customer. At the same time, Netflix floods the Internet with annoying pop-up advertisements seeking new customers. I know several popular websites, including The Huffington Post, where Netflix's ads pop up every time I enter the site.

Sound familiar?

In AOL's case, AOL subscribers sued AOL, alleging that AOL falsely offered "unlimited" service for a flat rate, but did not have the capability to provide such service on a steady basis. AOL's customers -- and I was one of them -- constantly received busy signals when trying to connect to the Internet via AOL through their telephone modems. It was clear that AOL's liability was in large part due to the fact that it was sending millions of free disks in the mail (remember those?) soliciting new subscribers, while at the same time AOL knew that it did not have the capacity to handle the resulting influx of new customers. AOL eventually paid a huge sum to settle the class action lawsuit.

Along the way, AOL racked up gigantic losses and became a huge drag for parent company Time Warner, a drag that has long been reflected in Time Warner's depressed stock price. Time Warner has tried several times in vain to sell AOL. The name "AOL" has become a punchline ("America on Hold").

The lesson for Netflix, and other businesses, seems clear: if you want to avoid losing massive market share and goodwill that you will never get back, if you want to avoid becoming a worldwide joke, then do not paper the world with advertisements seeking new subscribers when you cannot meet the basic service demands contained in your contracts with your current subscribers.

Now pardon me while I go check out Blockbuster's website.

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