As we've seen time and time again, even the highest-flying companies can be thrust into crisis and controversy in an instant for a variety of reasons.
And for Netflix, which is in the midst of a crisis today, the cause of its problems was a decision to change its business model.
That change, of course, forces consumers who had previously received DVDs by mail along with digital streaming to choose one, or pay significantly more for both.
Not surprisingly, this structural change (and effective price increase) sparked criticism from customers, many of whom vented their disappointment (and outrage) online. Many unhappy customers went so far as to state that they'd be canceling their subscriptions if Netflix didn't reconsider its plans.
Last week we learned that some of them are apparently following through on their threats, as Netflix announced that it expects to see a drop in subscribers in the third quarter. Wall Street didn't react favorably, and Netflix stock sold off sharply. All told, it plunged nearly 40% in a matter of days.
That led Netflix CEO Reed Hastings to take to the Netflix Blog on Sunday and publicly apologize for his company's handling of its changes.
In many cases, an apology is a good step a company can take early on to make amends for its mistakes and start the healing process. But unfortunately, Hastings' blog post has only deepened the crisis he faces.
Apologies: the devil is in the details
Not all apologies are created equal, and not all deliver the desired outcome. That may prove to be the case with Hastings' apology, which starts off on the right track but ends poorly.
In short, Hastings made one fatal mistake in his apology: he assumed that Netflix customers were primarily upset because Netflix hadn't explained its changes well enough to them.
In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, “Actions speak louder than words,” and we should just keep improving our service.
But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both.
He goes on to explain in detail why Netflix felt the need to separate Netflix's DVD and streaming offerings into two distinct subscriptions, and to charge 'full price' for both.
The problem, however, is that Netflix customers don't need a bunch of MBA and marketing speak to understand why Netflix did what it did. Many did understand the rationale, but even for those that don't, the fact remains: customers simply didn't like change.
In trying to explain to customers why the change made sense for Netflix, he failed to explain why it made sense for its customers.
Don't apologize for one big mistake, and then make another
Providing a company-centric (as opposed to customer-centric) apology was bad enough, but Hastings made the situation even worse by announcing an even more drastic change: the complete separation of DVDs by mail as a new service, Qwikster.
Not only does this change not address the customer complaints, it created new ones. For instance, because Netflix, which is now streaming-only, and Qwikster are separate services, customers who previously had one account and one bill will now maintain two different accounts and see two separate charges if they choose to subscribe to both services.
In other words, Hastings used his apology to let Netflix customers know that he'd be making their lives even more difficult.
Apologies work best when you listen
In the final analysis, Hastings' apology has been poorly-received for one reason: he believes that his problem is a result of his failure to talk more to Netflix customers when, in fact, his problem is a result of his failure to listen to them.
Now that the original Netflix is Qwikster and the new Netflix is Netflix, it's arguably too late for Hastings to issue the type of apology that works: one in which customer concerns are addressed substantively.
There's good news
So is Netflix, for lack of a better word, screwed? Not necessarily.
The good news for the company is that you don't always need to apologize (or apologize well) to be forgiven. If Netflix can convince customers (and former customers) that Netflix and Qwikster are worth what Netflix is charging for them, it can still earn and regain their trust and patronage.
The bad news, of course, is that that Netflix won't be able to mend its relationship with customers nearly as quickly as it hurt them.