Lessons For The Restaurant Industry From The Netflix Debacle
If You Want To Lose Trust From Loyal Customers, Follow the Example of Netflix
If you don't use Netflix (or perhaps live in a vacuum) then you have probably missed out on all of the excitement around its announcement on July 12 of this last year regarding its change in policy and rates. There has been much debate about whether the price change was legitimate, but what has been less-debated is the manner in which Netflix presented its changes. The social media atmosphere literally exploded over the original July announcement and many (admittedly including myself) threatened to remove or downgrade subscriptions. As a Netflix subscriber myself, as well as a marketing strategist, it has been interesting to analyze the mistakes that were made in these announcements in an attempt to avoid the same mistakes.
As I thought about this, it hit me how drastically my personal (and judging by the majority of social media comments, everyone else's) opinion of Netflix changed overnight. Netflix succeeded in turning numerous loyal customers into frustrated, angry, and sometimes even former, subscribers (and as you know, we at Prima are obsessed with keeping loyal customers). The question remained, however, would all of these angry people actually carry through with their threats or would they (as Netflix believed) simply settle grumpily and move on with life. The financial backlash since the rate change (40% plummet in stock, and a loss of 1,000,000 customers) as well as the announcement from the Netflix CEO yesterday puts this final question to rest with his formal apology and personal explanation. To be fair, I do appreciate Reed's comments regarding the true motivation behind the decisions, however, these were communicated too late to affect the majority of responses to the decision. Because of these things, I believe that Netflix provides most businesses, and specifically the restaurant business, with a number of lessons to be learned from its poorly developed marketing strategy involving these changes.
Lesson #1: You Are Never Too Big To Ignore The True Needs/Desires of Your Customers.
By Netflix CEO's own admission, they were more concerned with basing their decision off of "past successes", then they were on potential customer response. I think this is a great reminder to any restaurant from Olive Garden to the little Mom & Pop Cafe increasing its control over the tiny Iowa town's baked goods market: you are never so big that you can't be brought down (or hey, as the Bible says: "pride goes before a fall"). I think Amazon is actually a good example of a large company who understands that its success is directly tied into its customer satisfaction. Of course, everyone knows this at the top level. We all know that we need to make the "general populace" happy with us, but I think it is actually more rare for that to be transferred over into day-to-day interactions with individual customers. So you own a restaurant and don't want to make the same mistakes that Netflix has, fine... realize that you can't make arbitrary decisions based upon numbers and facts without being concerned about the individual him/herself.
Lesson #2: Social Media Truly is the New Front Porch
Allow me to explain. I am from Minnesota, and when I moved to Louisville I experienced a relatively new concept... the front porch. Unlike where I grew up (where the privacy-fenced in backyard contains the extravagant back deck), the older houses further south have front porch's... and big ones. Like, bigger than just providing enough space to get you out the door, but with swings and seats and even ceiling fans (actually didn't believe this one at first)! The front porch was where the neighbors got together to connect, to talk to passerbyers, to get opinions on the weather, politics, high school football team scores, and what they thought of the newest cafe in town (avoid the meatloaf!). Social media has in many ways, taken over as the new front porch. This of course isn't really news to anyone, I can just tell you that as a marketer it can be difficult to actually measure specific response based upon social media. We know people use it to review us, but it's hard to get an actual "this had x amount of impact on my business." The Netflix decision revealed overwhelmingly that social media is already, and will play a major roll in business decisions that affect the general public. I first heard about it on twitter. I immediately tweeted about it (which also updates my facebook account) and by the end of the day last July, was discussing it with half a dozen friends. From the numbers that people have been throwing around, I was far from alone.
So how does this affect the restaurant industry? Know that your customer service really does matter. You must put your waitstaff under even more scrutiny. You must ensure that your chefs/cooks are not taking those shortcuts. Before, an annoyed customer might tell a couple of friends, which in smaller areas was often enough to shut down a poorly maintained restaurant but not enough to noticeably affect a national chain. Now however (with twitter sometimes being that which informs news agencies of breaking news), social media cannot be ignored. Get on your social media account, interact well with your customers, make sure to genuinely do all you can to solve customer issues in store, ignore the tendency to take shortcuts with customer care because "it's just one customer".
Lesson #3: Be Intelligent with Price Increases.
Since I am involved in marketing for a business that generally likes to make money as part of its practice (otherwise we would have formed a non-profit organization), I understand that price increases are a common and not necessarily-spectacular thing. However, what a great example of a price increase done wrong. As I have discussed this with other Netflix subscribers and have read online reviews/comments, it has become apparent that the manner in which Netflix presented the decision was another factor in the negative customer response. Even in our business at Prima where we face manufacturer price increases on almost a yearly basis, I have never before seen a 60% price increase at one time (though, one time I did see over a 500% increase on an online solution we were using... we are no longer taking advantages of their services). Without seeing the bottom-line cost of the different solutions to Netflix, I am still slightly suspicious that a 60% increase was not needed to keep the overwhelmingly popular company afloat. Regardless, the increase should have included more specific information on the benefits that would be received and not simply a marketing blogpost about "changes" which turned out to be a massive overhaul of rates (more will be said about this in the 4th point). There are many factors that go into these things and I want to be careful to avoid areas that I do not have all of the required information to make a judgement, therefore I will just suggest this for restaurants: Everyone has to raise prices at one time or another. There is always backlash, but the extent of the backlash can be controlled at some level with (1) a legitimate reason for the increase, (2) great communication regarding the specific increase, and (3) a slow increase as opposed to a large initial increase. As evidenced by Netflix, people will complain about the 4% raise as they continue to purchase their latte, but they will drop services in droves when the increase is 60%.
Lesson #4: Communicate With Your Customers.
This last lesson is somewhat of a continuation of the last point, but expanded. The final major mistake I believe Netflix made was in not adequately communicating the decision to their customers. Lest you think I am now making things up, this last mistake is not simply my own opinion. It is actually addressed specifically in Reed Hastings' blog post, from yesterday. Communication is essential in keeping loyal customers. Customers who feel that they cannot trust a business will often leave, even if the price is slightly better! Poor communication fosters mistrust and initial, angry responses to change. I am suspicious that the response would have still been great in social media, but that the sides would have been more even between those for and against if Netflix had done a better job of communicating specifically why they were doing what they are doing. It could have been more of a discussion then a massive, online anti-Netflix rant. Therefore, know that as a restaurant owner, sometimes those hurricanes will play havoc with your orange purchasing (disclaimer: I am making this up because I am not an expert on hurricanes and oranges and if they actually do affect each other, but you get the idea), so when you have to raise the price on your "freshly squeezed" orange juice, try putting a sign up saying something like: "We apologize, but because of the devastation upon the state of Florida from Hurricane _____, we are unable to get oranges at the great rate we were able to before. Thank you for your understanding." Honestly, it's a lot harder for a customer to get ticked at you when farmers in Florida are losing their livelihood. You're not taking advantage of Florida's misfortune, you are telling the truth. As much as is possible, tell the truth with your customers and communicate well and you will gain the trust of those customers.
Hopefully these lessons have been informative. If you like this post, please help us get the word out by tweeting it or liking it on facebook (just use the buttons on the left of this page!). So what do you think? Any other lessons you think can be learned from this Netflix Decision? Or anything you feel they did well?Until next time...