Raise your hand if you're pissed off about the Netflix price hike...
Many of you are, others of you have no idea what I'm talking about. You undoubtedly know who Netflix is - they're the people who killed the local video store - Blockbuster, et al - by changing the game. Instead of having costly retail space, Netflix originally provided videos through mail order - you paid a monthly fee, then you could rent a movie that would be mailed to you, then you mailed it back to get another movie sent to you based on what you had reserved. All you can eat, you just have to get it back in the mail. Brilliant.
Netflix always innovates. One thing they've spent a lot of time on is the ability to "stream" portions of their video library - taking advantage of the broadband connections in most homes and the tech savvy nature of their customers. The move to streaming would help make the business more profitable - mailing out all those DVDs isn't cheap, it turns out...
So, onto the recent news - Netflix announced a pricing change in July 2011 - here's the rundown of the details from TechCrunch:
"Netflix is officially on an all-out assault on the DVD — or so says their just-released pricing strategy. The new prices yell loud and clear that streaming is the future and you’re going to pay (literally) if you don’t hop on the bandwagon. Maybe this is why Reed Hastings stated back in May that DVD shipments might go down for the first time ever.
Gone are the plans that include streaming and DVD. Customers previously had the option of selecting the streaming plan for $7.99 and then paying an additional $2 to be able to rent one DVD at a time. Now the plans are separate with the streaming plan costing $7.99 and the DVD plan at $7.99; selecting both options for $16 results in a 60% price increase. Current subscribers will be able to ride the lower price until September 1st, but the plan just went live for new customers. Ouch."
The reaction among Netflix customers was ugly:
"And, as you may have heard, customers were not happy. No, they were not happy at all. In fact, on the blog post in which Netflix announced said pricing changes, over 12,000 comments were posted (and that’s using Facebook’s commenting system, something TechCrunch readers are unhappily familiar with), most of them angry, and many in turn did their own announcing, saying they would be tendering their resignations, effective immediately.
Of course, but, so what? Well, according to YouGov’s BrandIndex, in the ten days since Netflixmade its price changes, the national perception of Netflix’s brand among adults dropped precipitously from a 39.1 on July 12th to -14.1 on July 18th, and currently sits at -6, putting Netflixin a virtual tie with Blockbuster. With a margin error of 5, that’s no tiny aberration."
So what's it all mean? What can you learn from the Netflix pricing change as an HR Pro? I think the following 4 things:
1. Costs and margins matter. Don't kid yourself. If you believe you can migrate the customer to a similar product but a cheaper delivery platform and you choose not to do it because you're scared of the blowback (from employees in your case), you're going to run the risk of having an operator make the call for you. Put on your big boy/girl pants and make the call. It's called business, and you have to participate.
2. Take all the pain at once. If you're making a move that's going to be seen as negative, ask yourself the following question: "What do we need to include in this organizational change, so we get as much of the change out of the way with this single announcement as possible?" Don't do 2-3 change announcements if you can do it all in one package.
3. Communicate why you're doing it. Why? What's the goal? Does it make the organization more stable as a result? Sell the reasons - or get judged without your voice present. Netflix didn't do this - their move was designed to drive people away from the costly DVD model or make them pay dearly for it - and they didn't say that. You can do better.
4. Consider grandfathered tiers in the change. Can you make the change effective with new employees and protect grandfathered status for existing employees? May not be the right thing in your situation, but certainly a damage control mechanism (if the math works out) that you should consider.
Blowback happens. Take the time to read through the Netflix pricing situation and the resulting uproar from customers and ask yourself - what would you do differently if you had to migrate all of your employees to a consumer-based health plan in January?
It's your business, and the issues at play are the same for a VP of HR as they are for the CEO of Netflix.