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Netflix’s Qwikster is Bad Decision

Written by Ivy Kolpon
Edited by Gregory Bartolomei

Organizations make decisions every day that will affect their public perception. Netflix made a large decision that adversely affected their membership. About three weeks ago, Netflix announced it would be splitting its DVD-by-mail service into a separate service called Qwikster.

CEO Reed Hastings thought this would help promote and emphasize its online-streaming service. After an angry uproar from their customers, Hastings quickly revoked this proposal in order to keep customers happy. He needed a quick way to manage the crisis situation. He made a statement saying, “ ‘There is a difference between moving quickly – which Netflix has done very well for years – and moving too fast, which is what we did in this case’ ” (Woo A1).

Hastings, as well as the rest of the Netflix executive board, did not do a thorough stakeholder analysis. Perhaps, Hastings misunderstood the interests and demands of his customers or he did not think they held as much power as they did. In the stakeholder analysis, Netflix is responsible for determining the market and nonmarket stakeholders, as well as the power, legitimacy, and urgency of each stakeholder group. A thorough stakeholder analysis shows Netflix customers are market (primary) stakeholders. They hold much of the power in the relationship because if they do not buy products from Netflix, Netflix cannot exist. Customers’ demands are legitimate because they can easily be met with Netflix’s resources.Customers’ demands require urgency because Netflix needs their sales to survive. If their needs are not met quickly, customers will most likely discontinue their membership. Hastings should be complying with the customers’ demands and Qwikster was obviously not one of their demands. Because customers are reactive (they wait until a decision is announced to respond), Hastings must be particularly sure of his decisions before they are announced.

The creation of Qwikster may have also occurred at the wrong time. They announced the new service on the heels of increasing their prices for Netflix service. Had the announcement of Qwikster come at a later time or been presented in a different manner, the release may have been more successful.

To manage this Qwikster disaster, Hastings did the right thing by canceling the service. However, in introducing the new service and increasing the Netflix price, Netflix lost a lot of customers. A follow-up article specifically says a substantial eight hundred thousand subscribers dropped Netflix. Hastings claims the majority of these customers left because of the price increase, not the separating of Netflix and Qwikster. He provides support for this statement based on the numbers of customers that left after the announcement of increased prices, as well as the actual effect of the higher prices. Still, Hasting is being quite contradictory considering he cancelled Qwikster just three weeks after it was publicized, due to his angered stakeholders. If he truly believed customers unsubscribed to Netflix due to the increased prices, he probably would not have been so quick to cancel Qwikster.

The logical solution to regain some of their old customers, as well as encourage new customers to join would be to offer a six-month discount to re-subscribers or new users for a limited time. This type of incentive would promote loyalty to their customers. Nevertheless, Hastings refuses to offer promotions of any type. He claims he is “pleased with the company’s marketing efforts” (Sherr and Woo B2).

Hastings believes his global expansion in the United Kingdom and Ireland will help boost sales in the long run (even though it is creating more costs and losses in the short run). While this may be true, perhaps Hasting should concentrate on regaining some of his old customers. If he continues to refuse to use promotions to regain subscribers, he must rely on some other method. Possibly, framing Netflix differently to their customers could help. Initially, Hastings wanted to frame Netflix to promote its online streaming service. Instead, Netflix could frame the importance of their customers and promote their needs. In the future, the re-release of Qwikster may be more successful if presented differently.

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 **Due to technical difficulties we recently had to switch domains and transfer all of our website content.  Please keep in mind that while we have been publishing articles for two years, the published dates shown may not reflect the initial publish date.

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Sources:
Sherr, Ian, and Stu Woo. “Netflix Adds a New Woe: Red Ink.” Wall Street Journal. 25. Oct. 2011
Woo, Stu. “Under Fire, Netflix Rewinds DVD Plan.” Wall Street Journal. 10 Oct. 2011.

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