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Brand Management

Brand Arrogance: The Threat Within

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Netflix reed hastings brand strategy

Consumers don’t value brands; they value the idea the brand represents to them. This idea will always be worth more than the product, or the actual bricks and mortar of the business enterprise. When marketers behave arrogantly, the value of the idea people care about is instantly diminished. And once this happens, the road to redemption is long, difficult and expensive.

A recent example of a marketer’s arrogance towards its customers is NetFlix.

The story is classic, almost cliché. In Netflix’s case, an innovative technology quickly ramps into an innovative business model with rapid customer acceptance and advocacy, and then inexplicably breaks its trust bond with the very people who were making it great. Other brands have done this as well. New Coke comes to mind.

Of course, much of the hubris and arrogance was initiated by Netflix’s CEO, Reed Hastings. When the decision was made to raise prices and change how customers receive value without any consideration to the value of the brand’s “reason for being” and what it represents to people, the value of the Netflix brand was instantly diminished. Not even a gracious mea culpa from the CEO or promotional incentives will undo the damage done.

The Netflix brand paid an incalculable and heavy price.

The lesson for brand managers is clear:

People place higher value on trusting in the idea your brand represents – not the physical thing itself. Before you change the physical thing, make sure the change will not damage the trust people have in the idea and its experience.

It’s not about the thing you make, the service you provide, promote and sell that matters.

Netflix customers didn’t care about the “service” provided. They cared about something far more important– being in control!  Without warning or consideration, Netflix took that away from their customers. Bad idea.

This is an important and often overlooked principle in brand management. When a brand is successful (like NetFlix), it’s because customers value an emotional experience more than a functional benefit. When the brand delivers on the desired experience, trust is earned, bonds are made strong, and brand value grows.

Function, features and benefits come along for the ride. They have to be there, but they don’t matter as much as the perception of “use value” inherent in the brand’s promise.

Continue to provide customers with more “use value” than they pay you in cash value and your brand will always be trusted and command premium pricing.

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3 Comments

Laura Seltz on October 25th, 2011 said

As a person who reads your blog religiously, and who recommends it to others, I have to admit I’m a bit dissapointed by your analysis here.

I’d like to offer another perspective. Forgive me, but I think perhaps the business media has been a bit arrogant in its castigation of Netflix. Netflix is not arrogant, nor are they stupid. They are facing a market that is in transition.

Let’s face it: in another five years DVD’s will be a thing of the past. They have to — in order to keep themselves from becoming dinosaurs (See Surowiecki’s excellent analysis here: http://www.newyorker.com/talk/financial/2010/10/18/101018ta_talk_surowiecki) transform their business away from DVD’s. As Surowiecki notes, what may be an advantage to them now – a customer base that values their DVD service – is also a drain, monetarily, that may in the long run ruin them. The cost of creating, sending, wharehousing, etc. etc. DVD’s is tremendous.

They need to rebrand for a new kind of client for whom DVD’s are irrelevant. Netflix could have handled this move with more grace – a price hike is not the way to build a brand. However, I also think business press was quick to leap on Netflix’s decisions and make it much more than it really was, and Netflix can very easily learn the wrong lessons from the press. The lesson is not to go back and do what it did. The lesson is to keep up the transition it needs to succeed in the long haul. That means getting rid of a DVD division that will sap its resources.

If you only look through the lens branding, you miss other factors. For example, months back you noted that customer loyalty was not important to the Border’s franchise. That was true. Why is it the only factor that matters now? In Border’s case, adhering to the loyalty of a rotting customer base was a fatal error. That the company was weighted down by a burden of stores, and never fully transitioned to the Internet.

I love you guys, but Netflix should not listen to you, nor should they backtrack. They should work on getting rid of their “dinosaur” base, and they should rebrand through brand development. What kind? By getting the best titles they can in their Internet base. They are doing this.
And 800,000 customers? Devalued stock? Eh, part of the process. Undervalued stock can be an asset if properly handled, anyway.
Customers want A PRODUCT. Their perception of the brand as being more than that product (i.e. trustworthy, representative of something greater) is based ON THAT FIRST. You can’t build a brand without a product. You taught me that.

I want to see the latest of 30 Rock. If I can’t see 30 Rock’s fifth season, then Netflix will lose my good will. Right now, I can’t see Eureka or Warehouse 13’s latest seasons.

However, did you know that they just got a slew of shows popular with young audiences? I could care less about these shows, but Netflix knows that they have to market to a growing future, not a wilting past.

Amazon is creeping into their market now by offering PRIME videos for free. That is the kind of thing that will lose them customers in the long run.

I want ease of getting to that product. That means that wonderful decision Netflix made to make itself part of the Windows Media Player – a decision that allows it to be operational over other windows on a computer, something that no other media company can do now, not even through applications. It has cornered a market that most people don’t realize even exists. (Yes: the multitasking market that wants to watch TV while wordprocessing.)

Ok. They lost customers. GOOD. Now they can begin to get rid of costly warehouses, and work on building their Internet business. They will have to kill off part of their enterprise to save the company.

I think their only mistake was backtracking. That was silly. One should wait a while before making such a decision. Nine times out of ten, the original decision was the right one. Now they appear weak. They should have hit back in the business press. Perhaps the business press is a place we forget needs to be marketed to as well, as business people look for stories they can interpret and misinterpret. We have to take charge of telling them what the interpretation should be.

Netflix didn’t do that. They allowed the business press to shape the story of this decision, hence your blog entry.

They’ll get over it.

I never stopped trusting Netflix. I am the customer Netflix now needs – the internet/tv only customer. It’s the dinosaur customer they have lost, and that may be a very good thing.

Thomson Dawson
Twitter: thomsonwhc
on October 25th, 2011 said

Laura–

Thank you for reading the blog. We sure appreciate it!!
In your comment, you raise several interesting and important points in your analysis of the NetFlix post.

Today (October 25, 2011) , NetFlix stock took a 30% tumble. I don’t think it is just the business press and bloggers ad infinitum who are not giving NetFlix a fair shake. Markets matter.

You are spot-on in your assessment that the DVD model is dying and the move from that format is correct indeed. The sooner the dust settles from the technology transistion, the better for all concerned.

Netflix business model and the decisions made to shift from physical things to streaming content is all well and good– but it was not the point of the blog post.

In writing the post, the concern was how the current customer was treated in the process. At the end of the day, regardless of the technology and methods for delivery– customers are king. Without them you have nothing. It’s just that simple.

Netflix was not loyal to its loyal customers and the brand is paying a steep price indeed. This will no doubt become business school case study fodder for newly minted MBA’s to ponder.

Customers own the idea the brand represents to them, not the marketer.

Laura Seltz on October 27th, 2011 said

Thanks for your response. I am honored by your thoughtfulness.

Forgive my rather longish response to your response. You don’t have to respond, nor do you have to post this (unless you feel so moved by my brilliance), but I thought I’d clarify a few thoughts I’m having.

I agree with you that Netflix could be perceived as being disloyal.

The questions that remain are the following:
1. How do we manage a brand when the industry is facing a major restructuring, and, indeed, is becoming obsolete? How does one work branding into the other fiscal and market forces facing a company? To build a brand, you must build the company, nu? I offer this as a question, not as a challenge. How would you have handled this problem, which (I’ll admit) Netflix mishandled?

2. I’m not sure I agree with your essential premise, “People place higher value on trusting in the idea your brand represents – not the physical thing itself.” I’m sure you’ve said this (and I’ve overlooked it/am oversimplifying), but any idea we associate with a company, including “loyalty,” “trust,” “belief,” “rightness,” “goodness,” etc. etc. is not a hard-and-fast contract that remains immutable in the mind of the customer.

The romance of the idea, and the emotions the idea generates, is a dance we have with a company – enjoyable, familiar, one that makes us want to buy to enjoy more; however, it is just a dance based on an emotion that any consumer will willingly shed when the next BIG THING comes along, or simply the next thing, the new dance. We don’t have a life-investment in it. And we know companies don’t really care about us as individual people. Customers implicitly understand the rules of the market; business is business.

But we surrender ourselves to the fantasy of the dance, because we want to believe that something else might be true. We make believe.

Yet that “trueness” shifts as the music turns, as different social forces come into play, as people around us move differently. And we simply change partners or change our rhythm.

So the “idea” is mutable.

Still, though, we want the product. I want to watch my favorite shows while I do paperwork. (Note to any Netlix execs: Eureka, new seasons, hint hint. Torchwood? Hint hint.) If Netflix stops providing that, I will stop subscribing. Lots of folks wanted cheap and easy access to DVD’s that did not require effort or the hassle of getting out a credit card. (Not the “feeling” of control, but actual control.) They left when the product changed.

(I’m overstating my case here, by the way – people were probably angry, because money matters, too, but I’m not so sure that I’d translate that into “loyalty” as easily as you would. Sometimes a cigar is just a cigar, and a pipe isn’t a pipe, and we really can’t know. That’s why marketing is truly an art, and not a science.)

I’m not being cynical, just practical – and whimsical, too, for I love to dance, and I love the dance of product, customer and market – particularly in the way you jam it here, on this blog where the best qualities of American capitalism – creative, empowering to all parties, positive – is ever-present.

Of course, we still have to be aware of the dance, and how easily it changes.

We loved Borders. Until we didn’t.

We have to understand the dance – and be able to change the tune.

In the end, I suppose I believe differently than you. I think customers want functional benefit first and foremost, but also want and expect an additional experience that comes from or is associated with that benefit. We want that emotional buzz to validate the money and labor we’ve spent on a purchase.

In any case, I very much appreciate your blog. You do inspire — firstly, in just being good at what you do, and being darn good writers, too. However, more importantly, in inspiring me in this cynical world to remember that there is a beauty in American sales and marketing — a true art that Warhol kind of got, and Miller (bless his soul) kind of didn’t. One needs a sense of humor, and a real joy in playing with words, ideas, ideals and products to celebrate the salesman, who is, after all, a storyteller and artist, creating this elusive thing we often call the American dream.

As the daughter of such a salesman, Thanks.

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