When Qwikster led to Quitster: A Case Study in Public Relations

Ad: Netflix announces Qwikster

Case 7-B: Netflix: Not So Fast . . . A Response to Ongoing Furor, Lee Wilkins

Netflix email image source Google

In September 2011, Netflix emailed its customers an apology from the CEO for not communicating the recent price hikes (customers learned of the price hike from tech websites).  In that email, Netflix did not roll back the price hike, rather they announced a new service, Qwikster, which actually splits the existing Netflix service into two separate ones.   In addition to paying 60% more for the same service, customers will now have to maintain two separate accounts, get two separate bills, log onto two separate websites and manage two separate product lists.  This is touted as ‘moving forward’ for the company.  This email compounded the errors made during the summer by communicating a corporate-centric message.

Customers didn’t want to hear about the CEO’s fear of turning into AOL or Borders, they wanted to know how this was going to affect them.  The answer: badly.

As long as that email is, the CEO’s blog post is even longer and more self-centered. While it’s a good public relations tactic to have a corporate blog easily accessible on the company website, it’s an even better tactic to deploy good content through robust communication while being transparent about the message and intent.  Customers responded on the blog:

Excerpts: blog.netflix.com/2011/09/explanation-and-some-reflections.html

And with their mouse clicks: over 800,000 subscribers left in the weeks following the announcement of Qwikster.  Worse, Netflix’s stock price plummeted: 

How did this happen to a company that was previously beloved by both Wall Street and its customers?   In their rush to grow, Netflix lost sight of their brand promise and embarked on a new path, disregarding their loyal customers. 

PRSA: Trust and Ethics in Public Relations (2011 Presentation) 

Looking at the ethics guidelines from the Public Relations Society of America (PRSA), Netflix failed on the core principle of “Disclosure of Information” in which members are expected to “build trust with the public by revealing all information needed for responsible decision making”.

The PRSA Code of Ethics is helpful in reviewing this case because it provides guidelines and core principles to follow.  It sets several fundamental values, including: advocacy; honesty; loyalty; professional development and objectivity; ethical practice and interaction.   Netflix ran afoul of honesty and loyalty; specifically Netflix failed to:

• Protect and advance the free flow of accurate and truthful information
• Foster informed decision-making through open communication 

www.prsa.org/AboutPRSA/Ethics/CodeEnglish/#.VL4nNkfF9ay

Where the code of ethics falls short is on consequences.  In the definition of ethics image, # 4 states “the consequences of actions and the importance of right and wrong”.  For Netflix, the consequence was a loss of trust from the public.  This led to a tarnishing of the brand, loss of customers, and a declining stock price.

John Stuart Mill’s Utility Principle focuses on the outcome.   It can be argued that Netflix management was overly focused on the outcome when they decided to raise prices by 60% and split their service into two distinct companies.  However, they were only focused on their desired financial outcome and not the impact to their customers.  Mill, a valuational hedonist, was concerned about the good of society and giving the people a voice.

Mill argued that pleasure-and the absence of pain-was the only intrinsic moral end. Mill further asserted that an act was right in the proportion in which it contributed to the general happiness.  Conversely, an act was wrong in the proportion in which it contributed to general unhappiness or pain. Utilitarianism can be subtle and complex in that the same act can make some happy but cause others pain. Mill insisted that both outcomes be valued simultaneously, a precarious activity but one that forces discussion of competing stakeholder claims. (Patterson & Wilkins, p. 11)

John Rawl’s theory of Distributive Justice takes Mill’s Utility Principle one step further.  Instead of trying to calculate portions of good, Rawl’s Veil of Ignorance asks decision makers to examine the situation objectively from all points of view.  The veil is used to free decision makers of the bias of their position and inherent viewpoint. This enables two values to emerge:

          1) Individual liberty is maximized;

          2) Weaker parties will be protected.
This results in “reflective equilibrium” which allows for some inequalities as long as they “contribute in some significant way to the betterment of most”. (Patterson & Wilkins, p. 120)

In summary, Netflix would have been better served had they employed a lens of transparency in their communications and viewed their proposed changes from their customer’s viewpoint.  In 2011, the management of Netflix ignored the first key question in making ethical decisions:

•       What duties do I have, and to whom do I owe them?

In doing so, they invoked one of Cooper’s Findings – Plummeting Credibility. This lead to plummeting customers, plummeting revenue and a plummeting stock price. Netflix has since rolled back these changes and has regained all lost market share.