Reed Hastings, President and CEO of Netflix, is not a dumb guy. He didn’t build the company from its humble beginnings in Scotts Valley, California into the multi-billion dollar in-home entertainment powerhouse it is today by not thinking clearly. Along the way he actually managed to get the cable companies and studios to get a bit worried, and that’s a pretty hard thing to accomplish.
And yet in September 2011, he made the Qwikster announcement and in turn set a course for public relations disaster. In the process he buried the company’s share price in a hole it may well take some time to dig out of and lost a great deal of trust and goodwill among customers and investors alike. The resulting backlash lead to the decision being reversed and an entire business plan was thrown out. The customer didn’t like the decision and made their feelings known, publically and loudly.
It’s a similar story with Bank of America. The plan to raise debit card fees so outraged the public that an about face was announced and as a result other banks including Wells Fargo and Regions rolled back their plans for debit card fees. Finally it seemed a victory for the little guy.
How can companies so completely misread their own customers? How does it make these companies look in the eyes of customers, vendors and investors when they have to backtrack so quickly on their decisions?
Some claim these and companies like them got too big for their britches and in an atmosphere of arrogance and a “they will have to take it or leave it” thinking, made these pricing and service decisions. Executives and boards alike, critics charge, must have felt they we’re “too big to fail” at their plan to increase revenue at the expense of their customers.
I disagree. It’s highly unlikely that intelligent executives and board members would knowingly place dollars and support behind an initiative they ‘guess” might work out. Much thought and planning and yes, probably market research, went into the creation of these plans. Netflix may well have determined that customers were ready for a separate online service, and Bank of America probably studied the customers’ ability to absorb higher fees. It is highly unlikely, however, that they tested their customer’s price tolerance across a number of specific products, services and scenarios, and as a result of this omission, miscalculated the public’s emotional reaction to the changes. Well executed Customer Anthropology Studies, carefully crafted Conjoint Analysis Surveys and Voice of the Customer interviews are all techniques which, in different ways, would have identified customer resistance points and helped executives plan more effectively.
In the end, the net effect of NOT listening to the customer in advance certainly cost these companies more than a well planned and executed market research project would have. Know your customers wishes and what their probable reaction to pricing and service changes will be BEFORE you act.