How Netflix anticipated customer emerging needs, and failed

Posted by Linda Ireland

Dec 12, 2011 1:50:00 PM

I’ve been thinking about Netflix recently. As a customer I was directly impacted by the company’s decision to change its pricing model. I watched as the company’s all-streaming offering was split off into a separate company called Quickster, and then watched as Quickster was shelved when customers revolted. Many critiques from customers, journalists and analysts focused on perceived profit taking, or greed driven pricing as argument against the moves.

Looking deeper, I saw Netflix transforming its operating model to one that delivers value to customers via streaming – hoping that customers would come along. And thus my headline.

netflixThe concept of streaming video to your phone, iPad, TV, laptop or tablet computer is growing. A couple of years ago it seemed like a technology we should have seen in the movie “Minority Report,” not in the year 2011. So I believe Netflix was betting that we would start to transform the way we consume shows, movies and other online content.

The key word is “start.” There is clearly a large percentage of early adopters who are using this technology and loving the flexibility it offers. But many consumers are not even close. Folks without access to broadband. Those who don’t want to live with the “hiccups” and breaks in online streaming, or simply prefer the more true and uninterrupted “theatre-like” viewing that DVD’s offer on a full screen television. And those without devices that access Netflix.

How did Netflix anticipate customer needs but get them so wrong?

When you create a need, you are one step ahead of your customers, triggering demand by anticipating an emerging need, problem or desire. I’ve said before that anticipating customer needs as they evolve is a required action any company should take, so I give Netflix kudos for being proactive and demonstrating clear intent. Wise companies anticipate needs, and price by anticipating what it would be worth to someone to have a new need solved.

We often point to Apple as a company that successfully executes on anticipating customer needs, and I imagine leaders at Netflix have as well. No one asked for an iPod, iPhone or iPad, and yet there Apple was, triggering demand by solving emerging needs (or wants, as this ZDNet writer points out). Why does the Netflix case seem different?

I think Netflix got it wrong two ways. First, the company was too far ahead of its customers. Its timing was wrong. Broadband access is growing, but it’s not everywhere yet. Smart phone adoption is still just around 35 percent nationally. And the number of people still watching DVDs and BluRay movies is substantial. So Netflix is out to claim a leadership position in solving this emerging need. That’s fine. Yet instead of opening a door customers would naturally walk through, Netflix aggressively pushed customers over the threshold via substantial price increases and a ‘you-can-get-streaming-only’ company. Doesn’t it feel like the company is dragging its customers into a future that’s not really quite here yet?

The second way Netflix got it wrong was the poor quality service they offered for streamed content anywhere, anytime. Not enough in-demand, or “hot” content is yet available via Netflix, and some viewers simply won’t bear the “breaks” still too common in streamed content today. While Apple introduced “insanely wonderful” and brilliantly designed products Netflix offered something that doesn’t consistently measure up to the optical media (disks) it wanted customers to leave behind.

Don’t get me wrong. Netflix has a very interesting business model opportunity on its hands. While I give Netflix high marks for aligning its operating actions across the company to its customer experience, I have to fail their leaders for not defining and offering a customer experience that customers would value. As Aveusian Nancy Norman often reminds us:

It’s not what customers will accept, it’s what they value (and will pay you for) that matters most.

Streaming technology will continue to shift. Intellectual property rights will shift in favor of a larger streaming media selection. Tangible optical media may be a thing of the past soon. And with these shifts, new business models will emerge. Perhaps Netflix will get it right next time – I am certainly betting they have learned from this year’s mistakes.

What do you think? Did Netflix fail at anticipating customer needs? And if yes, what does that mean for Netflix and our future as media consumers?

Topics: Customer Experience, Transformation


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