Archive for September, 2011

Raising fees will decrease revenue, not raise it

For those of you familiar with this column, you know I’m not the brightest guy in the world. However, I have learned a few things along the way. One lesson in particular that stuck in my head was the understanding that increasing the cost of an activity will decrease the number of people engaged in that activity. Another thing I’ve learned is that when you piss off people, it’s really hard to unpiss them. Who’s learned this lately? Our friends at Netflix.

Most of you know that Netflix recently raised their rates as much as 60% on their customers, all with the intention of providing a better experience and improved service. I’m not really sure how you can reward your loyal customers by raising prices, but perhaps the folks at Netflix are just smarter than I am. Then again, perhaps they are not. As a consequence of their careless decision to punish their customers, they have also managed to piss them off. The results are accordingly predictable:

  • Since announcing the price increase, Netflix has lost or will lose as many as 2 million customers.
  • Although the price hike was intended to accommodate the needs of its shareholders, who demanded higher stock prices, Netflix stock has dropped 50% over the past month and 65% since it’s all-time high in mid-July.
  • The rosiest estimate shows that Netflix’s profit increase as a result of the price increase will be… exactly zero.
  • At the same time, Netflix has been eviscerated in the press and by its customer base. Almost all goodwill and loyalty has forever evaporated, and its competitors are salivating at the chance to topple the big dog.

That’s a lot of bad things for absolutely no payoff. I’m sure if executive management had the chance to do it again, they would have reconsidered such a fatal decision, but unfortunately it’s too late. You can’t unring a bell, put the toothpaste back in the tube, or unpiss off your customers.

Take care of your customers, or they will take care of you, one way or the other.

September 29, 2011 at 9:09 pm Leave a comment


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