Changing Your Strategy: Do Customers Matter?

To Netflix and Facebook it appears that customers don’t matter.

It’s been an interesting few weeks in the media for two very public companies with very large customer bases – Netflix and Facebook. Both of these companies have taken a change in strategic direction, both companies have failed to consult their customers/users, and both companies have faced a very public backlash.

So, the question that comes to my mind is – when making strategic decisions and changes to products and services – does what your customers think really matter? My answer, yes!

Yes, Netflix is fee for service company and Facebook is a free service. Yes, Netflix CEO apologized in the wake of backlash of his decision to change the structure and services of the company, and Facebook made no apologies. One can make the point that both companies are for profit (even though Facebook is free to users) and therefore leadership needed to make the best strategic decisions from an innovation and financial standpoint – though most daily customers don’t view it this way.

Though one company apologized and one did not, to my knowledge, neither Netflix nor Facebook elicited customer feedback prior to making changes. I, however, have elicited feedback from friends and colleagues who are users of both services regarding their views of the changes made by both companies (I am an OD practitioner after all and strategy, *data collection and feedback are part of my life).

Some thoughts from my peers on Netflix:

I think Netflix’s apology email is interesting. But it’s a bad move on their part to separate the streaming and DVD services into two sites. It will cause more people to just choose one of those services, not both – and may backfire.
I’m sad because this spells out the future demise of Netflix, and I really liked them!
They are going down like the Titanic!
Netflix is in the midst of a downward spiral. Irrelevant in 5 years.
The only thing that makes sense to me is there’s a lot of DVD handling infrastructure/debt they are desperate to spin off into an independent company (that they expect to eventually fail) NOW… Otherwise it’s a very stupid decision (and I’m not convinced it isn’t a stupid decision even if that is the intent).
They’re definitely trying to spin off/kill off the DVD service – that’s why they changed the name of the DVD’s. They want the “Netflix” brand for streaming, and don’t care what happens to the DVD service. The only problem for them is that their streaming selection still sucks. Forced to choose right now, I’m sticking with the DVD’s. And I’m more tempted than ever to quit entirely and rely on Redbox and Hulu.
Netflix’s CEO Hastings really bungled what could have been a good thing for customers, or at worst neutral. If anyone’s on the Netflix board, I’d consider a serious offer to take over the CEO job.

Some thoughts from my peers on Facebook:

Really, when a totally free and voluntary service makes relatively minor changes to its user interface, this should NOT be a big deal nor anywhere near the worst thing to happen in your day/week/month. Take 5 mins, kick the tires and figure it out…I believe in you!
But when it becomes a major news story that the changes are considered a failure, the company should take notice. It’s like a strike in baseball – the batter wouldn’t continue to do something that didn’t work.
Well considering they are completely ensconced in not only pop culture but business flows, it would be hard to just cut it off because you don’t like the “setup”. Like anything else, until usage goes down enough or a competitor rises up, there really is no need to listen to customers.
Ugh, Facebook? Now I have to go through my entire friend list and customize each person — what I do/don’t want to see, whether they’re a close friend or an acquaintance, what list they should be on? Way too much work to update everything.
I think they’re trying to be Google+ and Twitter both…unoriginal and frustrating.
There’s too much going on here. Eh, I wouldn’t go so far as to say I don’t like it, but it does seem like it’s a more a “major” thing to get used to compared to before.
So the only reasonable response is to love it or leave it? What an odd way to view a mutually beneficial relationship.

So, based on the very brief data I’ve collected, the morale of the story, it seems pretty clear to me the importance of eliciting customer feedback prior to determining changes in strategic direction or product or service offerings. In discussing this topic with a marketing colleague of mine, Ron Romanski of Preactive Marketing, he said: “In the last week, roughly 1/3 of the status updates I’ve seen on my social media networks were speaking negatively either about Netflix or Facebook. Some marketing research has indicated that upwards of 90% of people trust the recommendations of those in their social media networks. I am among them. So in this instance, given that 1/3 of the posts are relating to just two companies and negative in nature that is quite a social media protest.”

Though some people are willing to understand that changes are needed to keep a business financially viable and ahead of competitors, that does not necessarily mean they are willing to be inconvenienced by changes to things that worked well for them – particularity without being consulted!

“Change is not necessary, survival is not mandatory.” – W. Edwards Deming.

I can understand Deming’s point. Yes, to survive in today’s business environment companies must constantly be changing and innovating. However, to also survive in today’s business environment, companies must maintain high levels of customer satisfaction and engagement – and to do so it is even more important than ever that they communicate with customers regarding changes, that customers trust them, that customers feel heard, and that they understand the benefits changes can bring.

*Data was collected using various social media sources, including Facebook

*Data was collected from users of diverse backgrounds ages and genders.

*As an update, article in the WSJ on 10/25/11:

Netflix shares, which had already fallen 61% from their all-time high in mid-July, fell 26% more in after-hours trading Monday, following the quarterly report. The company’s market value has sunk to about $4.6 billion from more than $16 billion in the space of three months. Netflix said it lost roughly 800,000 subscribers in the third quarter.

About Scott Span, MSOD: is President of Tolero Solutions Organizational Development & Change Management firm. He helps clients to facilitate sustainable growth by developing people and organizations to be more responsive, focused, productive and profitable.

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