How Netflix went from winner to loser

Once upon a time, there was a really, really successful startup--which means that though it's still pretty small, it had a skyrocketing stock price.  And it was doing really well--in a recession!  Awesome, Netflix!

Alas, something happened.  Netflix thought it could always do better.  (There's nothing like the sight of lots of money to make someone want much more money.)  So it made this decision: it pulled the rug out of its customer base by forcing them to pay way more for the service!  In a recession!  Not so awesome, Netflix.


Netflix wasn't stupid; it knew that lots of its customers would leave.  But, alas, more of them left than Netflix expected.  So its wonderful stock price went down. 


But Netflix didn't give up!  No, it sent an e-mail to all of its customers  It even sounded like an apology! How PR of Netflix!

Dear Victoria L,

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology.

Oh, if only Netflix had actually followed through with "respect and humility".  Alas, the rest of the e-mail was spent explaining that because of some operational considerations that Netflix's customers don't even begin to give a damn about, in order to make even more money, Netflix had decided to pxxx off, (sorry children, "disappoint"), all of its remaining customers by spinning off the DVD half of its service into a different company with a goofy new name, Qwikster, thus undoing the whole convenience aspect of its brand promise. 

At the end of the e-mail, Nertflix followed the PR rule book and invited comment.  And boy, did Netflix get it--much of it not respectful. Kaboom.


In my crystal ball, I see what will happen to Netflix.  It will be trounced by its  vastly larger competitors--Amazon is the smallest of them.  To prevent the receipt of yet another self-absorbed "apology", it will be unsubscribed by many, many people who used to send it money every month.  Eventually Netflix will be bought by one of its massive competitors, but for much less money.


Moral of the story:  In the age of social media, why do brands go from winner to loser?  Because they act like a jerk.  Oh ye companies, hark unto me:  you make money because people choose to give it to you.  So don't p-, um...  "disappoint" them.

Be careful what you know: 3 techniques for keeping an open mind

Two stories came across my social media screens today:  one from Pew on how what you "know" about budget deficits is influenced by your political affiliation, and another from Time on how the myth of the independence-seeking male and the marriage-seeking female is a.... myth.  It just goes to show that you should be very careful about what you know.

I am fascinated by what it takes to think creatively, and the most important tool is a knack for keeping your mind open.  It turns out that your frontal lobe is better at openness, and your temporal lobe is better at closing off debate.  Well, if this is a contest that takes place in your brain, then you can be the referee.  

Much of the time it makes sense to learn from experience and apply existing patterns to new problems.  If we didn't listen to the temporal lobe, we'd never have moved on from the invention of fire, because we'd have to keep inventing it over and over again.  However it doesn't always make sense--if it did we'd never have moved from open pit fires to gas heat.  

In other words, you need to re-examine the world from time to time and come up with new ideas, or you're just as stuck as the person who doesn't learn from experience.  For example, when you look at competition do you consider that you are competing for people's time and attention, not just the dollars they spend in your brand's category?  Not that you should think of a dad's kids as your competitors, but you should be realistic about the need for a father to turn off the computer or the TV and spend time playing outside on a Saturday afternoon.

Here are three ways you can help to keep your mind open when your watch is telling you to just make a decision and move on:

1)  Make a Customer Your Colleague.  Look at life through the eyes of a customer.  Pick any customer and imagine what their day is like.  Don't try to jam your imagination into the purchasing lifecycle, just spend a good hour or two empathizing with what's important to them.  Sketch out how they move through a good day, then a bad day.  Map out all of the choices they have to make; the joys and frustrations they might experience.  Give your hypothetical customer a name and keep him or her with you as you strategize.  What would your customer tell you about the problems you're facing in your business?

2) Dream up Scary New Competitors.  Imagine that some entrepreneur was going to come out of nowhere and completely change your category.  What might they do?  This one is fun to do with colleagues.  Draw a map of all of the industries that touch your marketplace; where might the new competition come from, and what might it look like?  Again, don't leap to any conclusions; keep going until your scenarios are completely ridiculous.  (Probably you don't have to worry about competition from alien superbeings; Mark Zuckerbergs don't come along every day.  Phew.)

3) Clear Your Mental Desk.   This one is different; it's a mental exercise that you can bring not only into your work life but also your daily life.  Most of the time, the reason we don't think we have any time to dream up new ideas is that our mind is cluttered up with deadlines, conflicts, and inner turmoil of various kinds.  That puts you in survival mode and your temporal lobe in charge.  How hard would it really be to clear out even fifteen minutes where you turned to a blank wall and just let your imagination fill it?  The more you do this, the easier it gets to flip into frontal lobe territory when you need to. 

Your imagination is a powerful thing; it can touch the hearts of your customers, invent a new product, replant deforested deserts or resolve seemingly impossible conflicts with an angry teen.  The great news is that you, like everyone else with a frontal lobe, have a great imagination.  The key to setting it free is to be less focused on what you already know.

Without Us, We are Nothing

An excellent, long Pew study on American feelings and attitudes about family, and how our lives have turned out, was released just in time for the holidays.  I'd like to focus on a couple of facts and share some Thanksgiving observations:

• Most of us are grateful and satisfied with our family lives, obligations and all.
• Not surprisingly, we also feel most obligated to those who we rely on the most; for the young that is often their friends, for us older folks that's parents and children.

This says a great deal to me.  The role of mutual obligation in our private and social networks is perhaps under-appreciated in this country.  There is generosity and sacrifice, of course, but also gratification in the fact that we have something to give to those we love and depend upon.  Independence is a fine thing, but abandonment is a tragedy--how fortunate we are that families and friends understand that our independence is not the whole of who we are.


I know that I feel grateful for the fact that those closest to me trust me and understand me enough to ask for what they need, and sometimes fault myself that it's so hard for me to do the same.  


This Thanksgiving, let marketers, too, be grateful for the respect that is implied in our obligation to provide safe, healthy, high quality products, and empathetic, honest marketing campaigns.  Without us, we are nothing.


Happy Thanksgiving to all of you!

The redefinition of value

In a recent Nielsen company case study about Greek yogurt (of all things), comes proof that stressed Americans are demanding more value from products, even if the price is somewhat higher.  The equation works like this:  heavy yogurt consumers eat and cook with yogurt primarily because they are health-conscious.  If Greek yogurt is fresher, more nutritious, and better-tasting than lower-priced brands, then Greek yogurt does a better job of providing the core value that is motivating yogurt purchase in the first place.

Still, given the weak economy, why aren't people more focused on price (i.e., so they can save money in case something goes wrong for them, as is happening in so many categories)?  The answer is two-fold.  In the first place, for heavy yogurt buyers, the product is not a discretionary purchase, but a necessary one.  Therefore it's high up on their shopping list, where price is unlikely to prevent them from making a purchase. 

Secondly, the definition of value is emotional as well as rational.  If money itself becomes (or is perceived as) scarce, then it becomes more valuable.  It becomes something you don't want to "throw away" on inferior products.  In this situation, people actually become pickier about quality--because they are just plain mad when a product they buy with their hard-earned money breaks, wears out, or even tastes inferior.

This is potentially bad news for down-price brands--watch for them to pump up their quality message loud and clear!  TJ Maxx is one brand that is emphasizing designer labels over price, showcasing in its social campaigns that you are getting great value for your money (rather than just saving "cash").

Net message?  Message value!

How brands die

Please see this post from 24/7 Wall Street. As shown by the brands that have fallen hardest in the past decade, there are two ways that brands die:

1) They fail to compete (Kodak, Sony Ericsson). This isn't just a tech phenomenon (see: Kleenex), but in tech you can see Darwin at work. Generally, they lost ground on innovation more than price competition; an interesting point to consider when you consider how much you should be spending on market research.

2) They make their customers mad. The pharma and financial services brands on this list burned their customers and earned their fates. For example, I remember how arrogant Citi's senior execs were back in the late eighties--also crude and rude to work with, by the way.

You can get away with those mistakes for short periods of time, but not forever. Me too marketing strategies, blindness to consumer perception, and an arrogant approach to your market are all signs that you're in trouble.

Ideally, it's the job of everyone who works at a company to seek and nurture insight about customers and markets. Why? Insight has two roles: to help you understand the people you are serving with your products, and to help you know when you need to change your approach to your marketplace. Your culture will remain attuned to your market only if you make customer insight a basic skill.

Back to the Future, Part II

I went to Cattaraugus County partly to find out what might happen to American attitudes about brands and buying if the recession doesn’t lift any time soon. You can’t generalize from one region to the entire country, but I did find trends that are supported by other studies.

Cattaraugus County has been in economic decline for decades, so much so that the current recession isn’t all that noticeable for them. One woman we interviewed told us, “Some people here have suffered because of this recession. But most of us haven’t really noticed it. We’ve been there for a long time.”

As the boom and bust cycle of more urbanized areas passed them by, the people of rural New York State learned to live by tapping into the resilience and values of the past. As I discussed above, they do things for themselves, buy less, keep fit, and focus on family. In talking to them, I discovered that hard work done well is not just something you have to do, it’s something to be proud of.

We stopped by the side of the road to interview one man who was cutting cords of timber alongside his home, and he happily gave up half an hour to talk to us about what he’s done, how he’s coped with challenges. He told us that he cares for his mother and his sick brother, and recently had to sell his truck when his mother got sick as well; the financial and health stresses are significant and scary. At the same time, he’s proud that he’s found a way to expand his business, despite everything. He’s proud to display his skill, explaining about different types of timber, showing us how he cuts logs into size by hand before he puts them in the splitter, a skill he learned from his father. As we spoke with him, three separate times people driving by shouted hello to him. He has very little; certainly nothing extra, but he deserves and has respect in his world.

Of course, the Cattaraugus example only goes so far: we can’t all magically become rural farmers or woodcutters and live the simple life. Yet, according to a MetLife study, we collectively are shifting priorities in the direction of family, community, and frugality. Helping and receiving help from family members; saving more when you can; and above all making do with less are present realities for a majority of Americans. Community comes into the mix, perhaps because selfishness is understood to be bad math: 68% of respondents said that they’d take a 10% pay cut if it would prevent layoffs, which is sensible if you could be one of those who loses a job.

That sounds more like the Depression-era America my parents grew up in, where neighbors knocked on your front door and asked if you could spare a cup of sugar, or lend them your lawn mower. Helping your neighbors was natural, and you felt free to ask for help in return. Then, being successful was less about being sold to, and more about the life you had built for yourself; you might buy just one house and one car in your entire life. The dream, if it was a dream, was to succeed based on hard work and ingenuity, and the benefits that can bring to your family. It sounds corny, but it’s simply true.

If you’re busy building a life for yourself and your children, why spend energy choosing among hundreds of brands that all basically do the same thing? One example: our hotel room in Salamanca had samples of Breck shampoo. When I was a kid, we always used it, along with almost everyone else who was too old for Johnson’s Baby Shampoo. Their ads showed a mother with a little girl, with the implication that if you used Breck, you could have hair as soft as a child’s. Using it again forty-odd years later, I found it simply clean-smelling, compared with the silk-infused natural plant oil mink fat protein cornsilk dead sea salt stuff they peddle today.

I am a typical consumer, so mea culpa. I try a new shampoo brand every few months, just because I can. It’s kind of nuts, actually. It wouldn’t kill me to just keep on buying Breck my whole life, would it?

The proliferation of products is on one hand a sign of entrepreneurial energy, on the other a sign of market decadence, with products sustained by advertising, not true demand. I also work in advertising, so mea maxima culpa. In my own defense, I have always tried to live by the principle that if a product doesn’t meet a real human need, it isn’t worth selling. Yet I have been as seduced by the power to seduce as anyone in my industry.

This is not the time, fellow marketers. As it turned out, people buying things they don’t need with money they don’t have was not healthy, and right now the wounds are fresh. If the economy continues to lag, here are four trends to keep in mind:

• Pseudo-luxury (i.e., over-priced) brands are already on the consumer’s must-to-avoid list, but growing suspicion will also be directed at brands and stores that sell on price. It may seem counter-intuitive, but if you can only afford to buy one of something you can’t afford to buy something that’s going to break or wear out too soon. Quality will matter more, not less.

• A return to “buy American” is in the cards, with a tip of the hat to the quality of American products. Partly this is anxiety: most people understand that when a neighbor loses a job, they suffer too, with lower home prices and shuttered local businesses. But it’s also a realistic attempt to reassert control over quality given bad news about imported products.

• Servicing cottage businesses that help people to make a little extra money—for example by sewing, making repairs, or going back to the land in some small way--will feed the growth of companies that are smart enough to support and enable small-time entrepreneurs.

• An emphasis on heritage as a value in itself will emerge, as a firm foundation when so many institutions and brands that embodied prosperity let you down. Heritage is a vague concept, sometimes rooted in family, sometimes in institutions or companies; look for it to wear many different masks. In its simplest form, though, it’s about our own past; most of us had grandparents who got their hands dirty. The heritage that matters is the one that’s embodied in real memories.

Some American advertisers are already detecting a swing in these directions, responding to it with varying levels of insight:

Worker-Centered Americana. The POET campaign, which promotes ethanol, has two characteristics that set it apart from what you might expect in the energy category:

• It stars the workers. In general, energy companies use high-gloss campaigns that lecture you from a place of authority (what I call “shouting from the mountain top”). By contrast, POET shows you ethanol industry workers making personal statements on a busy street, among the rest of us small people. They are presented as proud, strong, and perceptive; the way we feel about ourselves when we’re feeling good about ourselves.

• It is brazenly pro-American, with one scientist proclaiming that she wants to let you “tell those middle eastern nations where they can put their tankers.” Indeed.

Home Comforts Americana. The Kraft Foods campaign for its American cheese (sorry, couldn’t find a video) is pure, pandering Americana, with a shot of a very cute kid looking supremely confident in a home-made Superman costume, as well as other scenes of ordinary people doing ordinary things and looking happy about it. They claim that their cheese could only be made in America, making the most of the fact that it would probably be banned in many countries. But in times like these, eating the pasteurized, processed, individually saran-wrapped food of your childhood is comforting. And it does contain at least some milk, very possibly from American cows.

Inspirational Americana. “The things we make, make us.” The best I’ve seen of this trend is the 2011 Jeep Cherokee ad, which has shown in movie theaters. The spot shows old footage of people building railroads and skyscrapers, gravely voiced over by a man touting American values such as craftsmanship and hard work to a sound track of hammers pounding on steel. In this America we go back to making things; there’s no more room for silly celebrities or dysfunctional elites. At the end of the one-minute ad we are told that the whole Jeep Cherokee was thought up and made here in America, where we still make beautiful things. Out of metal.

I have a simple piece of advice for you: think about what makes your customers strong in the face of adversity and fear. If you work for a heritage brand like Jeep or Kraft, rediscover your own roots and talk from there. It’s fine to make ’em laugh, but don’t sell fluff. If you don’t work for a heritage brand, I suggest that you think about what values and concerns your workers have in common with American workers and start from there, like the POET campaign did. What are they, and your business, doing to work through your own struggles? Working longer hours? Trying to make a better product?

These messages resonate now, and they may become a permanent feature of our collective understanding of brands. From what I saw in Cattaraugus County, if we Americans can make things and fix things on our own, we are several miles out from Helplessville.

And that’s a great message to be able to deliver to a stressed-out America.

Back to the Future, Part I

   I took an unusual vacation this year:  to Western New York, specifically Cattaraugus County and the town of Salamanca.  I chose this area because (as you'll see below) it is the polar opposite of a consumerist community.   Though it was economically and industrially dynamic for the first half of the twentieth century, upon the decline of the great railroads it became a stable, primarily rural economy. 

   Why is that interesting?  As the downturn lingers and people start cutting up credit cards and re-learning grandparent skills like canning and sewing,  the halls of economic power are quietly facing a serious issue: what if we go the way of Japan?  In Japan, where the recession lingered for more than ten years, consumer spending has simply never returned to prior levels, leading to a very slow-growth economy and persistent deflation.

   That could be bad news, it's true.  On the other hand, when you think of your customers as human beings (or yourself for that matter), is it really so terrible to hop off the consumer roller coaster?  That's what I went to Cattaraugus County to find out.

   One of the first things you notice as you drive along the Southern Tier Parkway is how rich the land is.  Lush fields; grazing cows; hearty plantings of corn, soybeans, vegetables; broad streams flowing down to wide brown rivers filled with life-giving mineral silt...  Agriculturally and aesthetically, this is paradise, with prime bottomlands folded among low green hills of Appalachian hardwoods, nurtured by wide, generous creeks and winding rivers. 

   Soon, though, you also notice how poor many of the people are.  In grandly-named Salamanca, once a busy railroad hub, a burned-out furniture factory towers behind houses with badly weathered paint, mossy roofs.  Still, the homes are large and welcoming, the yards neatly-mowed with small but thriving vegetable gardens and bright flower patches, the front porches furnished with comfortable chairs.

   Drive into town, or walk—it isn’t far.  Main Street features lovely warm brick buildings named for their builders and proudly labeled 1808 or 1857; it’s unblemished by the tinted glass of modern architecture.  (Though it is blemished; when you look closer, you see that a once-staid bank houses a tattoo shop, or is discretely boarded up.) 

   All of the Main Street clothes shops are consignment stores.

   Wow.  Where I come from, it can take you ten minutes to find a good space in a mall parking lot, and buses top things off by streaming the auto-deficient in from outlying areas. 

   Here?  The nearest Wal-Mart is in Olean, the largest town in the county (with all of 15,000 people), and that’s probably a pretty good hike from where you are.  Of course, if you need something, you can go to Family Dollar or Dollar General, which are proud to offer “basic goods”(1).  Or, if you want to throw your cash around, you can go to an antiques store; there are lots of those and the prices for some genuinely nice collectibles and old farm implements look like bargains to my jaded eyes.  Beyond that, you’re on your own. 

   One last oddity for a spoiled urbanite: there is take-out Chinese food, but it can be hard to find a restaurant that serves breakfast.  In one small city, we asked a young woman if there was a coffee shop nearby.  She looked at us with an are-you-lost expression and said, “No, there’s nothing like that here.”  Apparently unless you’re a tourist, the question of where to get your morning eggs and coffee seems kind of… clueless.  

   That’s the tourist’s take.  What’s it like to live here?  So far we’ve determined that those who live here don’t shop for sport. Even those who lack the wherewithal to paint their houses keep their lawns mowed and gardens thriving.  Some of them must have tattoos, though I didn’t notice any serious piercing or Goth action.  They make their own breakfast. What else do they do?

   One obvious answer is that they stay fit.  You see plenty of healthy young people in fields playing soccer, lacrosse, football, baseball, softball, and so on.  Their elders, too, are slim; they may take good advantage of the ability to walk to the store and eat fresh vegetables from their back yards, or they may do physical kinds of work.  Whichever or both, they do not confirm the cliché image of obese poverty.

   They have Friday Fish Fries.  With a tip of the hat to Catholicism, on a Friday we got a huge piece of very fresh halibut battered and deep fried to perfection for $9.95, with fresh rolls, French fries, a cup of clam chowder, salad, and coleslaw(2).  (One place we drove by offered “Friday Fish Fries Every Day”.) They also have a sandwich called “Beef on Weck”, named after the roll it’s served on.  They have awesome pies.  With fresh, local fruit, such as raspberries, in them.  For lunch, if you want it.  Trust me, you want it.  

   They work.  Unemployment is the New York State average (8.2% in May, up from 6.2% in 2008), which is very good considering how many empty storefronts and abandoned old brick factories you see.  They work part-time or seasonally in the tourism industry, or commute the 40 miles to Buffalo if they have to.  Out in the countryside, everybody seems to have a cottage business, such as keeping bees, fixing farm equipment, or cutting wood.  Incomes are low by Northeastern standards; the median is about $41,000 per year, which means that half of households make less.  Clearly it’s not because people don’t work—it’s because work doesn’t pay all that well.  

   And they are law-abiding.   Check this chart out; statistics are for Olean, NY, Cattaraugus County’s biggest city (the one with the Wal-Mart, and also beautiful St. Bonaventure University).  That is a very safe place to live.

   One possible reason for the low crime rate is that the countywide cost of living is low:  it indexes about 80, where 100 is the U.S. average.  Though the household size is above average, households here spend less than average on absolutely everything.  

•       They spend less for food at home as well as out of home.  There’s not much taste for the exotic and expensive here, and in any case there’s local milk, local vegetables, and local meat.   

•       They spend way less on apparel.  (Note to self:  jeans, sweatshirts, and comfortable shoes can be worn a long time before they need to be replaced.)

•       They spend less on entertainment too.  Hell, if you want entertainment, just go outside.  It’s beautiful and it’s an outdoorsman’s heaven. 

•        Computers and software?  Well, if you’re looking for someone who’s still running Windows 3... 

•        And they index abysmally (or gloriously) low on telephone expenditures, so they also save a fortune on counseling for Blackberry addiction.

The list goes on and on.  Medicine (even though lots of them are older), housing, insurance, transportation, investments (they don’t), travel… it’s all really, really low (3).

   But another, very important reason that there’s not much crime must be that social cohesion is high.  They know their neighbors, look after aging parents, carry on small businesses they learned from their fathers.  Or they moved here believing that there was something especially worthwhile about this life.  

   They have a proud, sad eye on their heritage.  The 150 year-old insignias on the old brick buildings are freshly painted. There are volunteer-run American Legion Halls, VFW posts, historical societies, and local museums (open 3 days a week) filled with high school yearbooks, old World War I or Civil War uniforms and lacy wedding dresses; a shared attic.  Memory and tradition are everywhere you go, as well cared for as those tidy yards.

   And therein lies the heart of my tale, which will unfold in Part II, next week. 

(1)  I didn’t make that up.   The Google result for Dollar General matter-of-factly states: “Owns and operates retail stores selling basic goods.”

(2) At the Hotel Dudley in Salamanca, NY, built in 1868. Link to Hotel Dudley site.

(3) Cattaraugus County Agricultural and Farmland Protection Plan, Appendix A.  See it for yourself here.