When Netflix increased its price this month, I figured the company would soon make it right like Apple did after its iPhone 4 antennagate.

Netflix has not made it right.

Here’s a quick overview of the price raise and the Netflix response:

Netflix increases prices from $10 per month to $16 for customers who get one DVD per month plus streaming content. Of course there was going to be an uproar. Price went up but value did not. But this happens to Americans. We’re used to it. Earlier this year it happened to our milk and other groceries. It happened to our gasoline. If you really think about it, it’s understandable. If you’re going to be buying exclusive rights to a drama series starring Kevin Spacey, you need to pay for it. If you’re going to compete against Amazon, Redbox, Blockbuster and Hulu, you better offer compelling content. Just this week, Netflix added Mad Men to its streaming list. That costs money. Presumably, that’s where the new, extra dollars are going. People will be angry, but if you do the right things, people can be moved to understand.

The problem is, this price increase is the only understandable action Netflix took here. What followed have been a series of PR mistakes that are unusual for a company that many (myself included) considered a master or consumer relations and public relations.

1. The Blog Announcement

It was a poor announcement. The price increases were clear, but the reasoning behind them was not.

Last November when we launched our $7.99 unlimited streaming plan, DVDs by mail was treated as a $2 add on to our unlimited streaming plan. At the time, we didn’t anticipate offering DVD only plans. Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs.

In response, customers wrote over 12,600 comments. Few were happy.

Here’s how I would have said it:

We didn’t want to increase your prices, but we didn’t have a choice. We want to continue providing you with terrific, new and compelling movies and shows to watch. If we didn’t do this, we couldn’t afford the increasing prices of good content, and you’d leave us anyway. Believe us when we tell your viewing options will increase dramatically, in time, with this price increase. We are sorry to do this. We value your business a great deal. Please let us know how we can serve you better. 

My version addresses people’s emotional attachment to Netflix. Remember, Netflix is one of only three tech companies (along with Apple and Amazon, for its Kindle) with a critical mass of consumer evangelists. People love Netflix. People will forgive Netflix. I still think Netflix will be fine here. But it needs to stop making mistakes.

2. The David Pogue Article

Two days after the company’s blog announcement, New York Times tech columnist David Pogue talked to Netflix spokesman Steve Swasey. I know Steve. He’s among the smartest there are in public relations. But I was shocked to read what he said to Pogue:

“I’ve had this conversation over and over again for the last 24 hours,” said Mr. Swasey. “Yes, 60 percent is a big number. But that increase is only $6 a month more. That’s a latté a month. We’ve gone from an extreme terrific value to a terrific value.”

Really? People are steaming, and you’re fighting to keep as many of them as possible as customers, and what you say, basically, is “stop whining, it’s just a latte a month!” When I read this, I figured Steve had done a hundred interviews by then. He was tired. He made a mistake. Then I saw what CEO Reed Hastings said on this month’s Netflix earnings report.

3. Earnings Release

A great chance to address consumers, mishandled again. Here’s an excerpt from the CNN article on the earnings report:

“It is expected and unfortunate that our DVD subscribers who also use streaming don’t like our price change, which can be as much as a 60% increase,” Netflix said in its earnings release.

The company acknowledged that “some subscribers will cancel Netflix or downgrade their Netflix plans, [but] we expect most to stay with us.”

Analysts asked several questions about the price hike on a post-earnings conference call. One question noted the thousands of comments on Netflix’s own blog announcing the new pricing strategy, as well as tweets under the hashtag #DearNetflix.

But the social media “noise level was actually less than we expected, given a 60% price increase for some subscribers,” said Reed Hastings, the CEO of Netflix. “We knew what we were getting into.”

Note the words: “expected and unfortunate…cancel…downgrade…noise level…we knew what we were getting into.” This is all particularly shocking because Netflix is a company that voluntarily refunds money to its customers when its streaming service is malfunctioning for an hour. Even when consumers don’t know things weren’t working. Even when they don’t complain. Netflix does the right thing.

Compared to Apple

Now, compare this process to what Apple did when it had a similar level of consumer outrage to its iPhone 4 antenna problem. Remember? When the iPhone 4 launched, you could not hold it in your hand a certain way because the signal would drop.

Initially, the company released statements that it was studying the problem. News leaked that engineers were working on resolving the issue around the clock. Then, two weeks after release, Steve Jobs and two of his fellow top executives called a news conference and patiently sat in front of reporters answering questions. Every iPhone 4 customer would get a free case that would solve the problem. If you didn’t want to use the iPhone with a case, you could return it without a restocking fee, no questions asked.

As Peter Merholtz recently wrote recently in a Harvard Business Review posting, the response was  “complete, thoughtful, generous, and final.” It was also elegant and right. The noise died down almost immediately.

What Netflix Must Do

It appears that the Netflix strategy at this point is to say nothing more until the anger dies down. And I suppose it will. But it won’t leave a good taste in people’s mouths. The lasting impression will be negative. Why let it be so when you’ve spent years building up goodwill and positive thinking in the market?

Here is what the company should do. It’s a simple two-step process:

1. CEO Reed Hastings should hold a news conference. Answer questions openly and honestly, until there are no more questions. There is a recent model for this, and it was made by the single most successful marketing company on the planet.

2. Offer customers something nice. Give people an empathic “thank you for staying with us.” A free month of service. Or a few months of discounted service. But the offer must be inclusive of everyone. Grandfathering wouldn’t work because it would make some customers — the new ones —  even angrier than they are now. A kind, fair offer to customers will make this right. The public discourse will turn positive again, immediately.

The solution is not complicated. And whether it takes these steps or not, Netflix will survive this just fine because it does enjoy that critical mass of evangelists. But the question is, will the company take basic, simple action to reverse the market’s suddenly negative perception of it? I think this is a no-brainer. Let’s see what Netflix thinks.

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