I totally set myself up there with a delayed follow-up…
In thinking about the question I posed on the fate of Qwikster last week, ultimately there were several things that came to mind. The first and foremost though is that - in my mind - the number one priority a company should have is the trust, confidence and satisfaction of its customers. And, in making any changes or alterations to any of its product lines, it should not disrupt any of these three critical sentiments. Its been said many times before and it proved true in Netflix’s case - it is very difficult and takes a long time to build consumer trust, yet one can lose it in an instant.
So when thinking about Netflix, I honestly was a little surprised in their execution. In particular, why is it that they didn’t simply make changes on the backend operationally and on their P&L? Why did they choose to create an entirely different site and force customers to maintain separate accounts? Were they trying to induce change and hasten the demise of DVD sales and encourage adoption of streaming? If so, based on the metrics that they surely have on customer use of them as a combo (and the backlash from the price hikes that came earlier this summer) how did they not anticipate the huge amount of disruption that such a move would bring?
In strategy development, its so important to think very carefully about what can go wrong. Is the potential residual damage worth the risk? Usually, there is an alternative solution that might not have the full benefit of the original strategy, but carries significantly less risk. When comparing strategies, a slightly lower return but with a lower risk is usually better than a higher return with greater risk. For Netflix, it seems to me that they could have undergone an organizational re-design that would have separated the businesses on the backend, but from a customer facing perspective kept the user experience virtually the same. Over time, the customer facing site would gradually change as adoption of DVDs decreased on their own. Netflix could also then add in incentives and offers (say deals for streaming? loyalty rewards?) to try to get people to use streaming more (and DVDs less). I would hope they would also analyze the reasons why people kept going to DVDs over streaming (perhaps selection choice?) and start to whittle at the competitive advantage between the platforms over time. However, they must also have realized that DVDs could have been a way to provide content to users where streaming deals were lacking. I don’t use Netflix, so I don’t know their interface terribly well, but I would think a way to approach the problem from a product management perspective is to encourage people to stream content when its available and then offer the DVD as a back-up solution for when its not. From a pricing perspective this could be a pain, but users would definitely like it and over time you could really get a sense of what people were welling to wait for (and consequently which studios are worth negotiating with for streaming content). It’d also be a good way to try to transition everyone to streaming once those gaps in offerings close.