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NETFLIX INC, (A): THE 2011 REBRANDING PRICE INCREASE DEBACLE Case Solution & Answer

NETFLIX INC, (A): THE 2011 REBRANDING PRICE INCREASE DEBACLE Case Solution

The five major shareholders of the company from the institutions are Vanguard group Inc, FMR LLC, Tiger Global Management LLC, Price T Rowe Associate’s Inc, and Capital Research Global Investors (NetFlix., 2016). Top 3 mutual fund holders are Growth Fund of America Inc, Amcap Fund, and Fidelity Contra fund Inc. Finally, the five shareholders from the insiders include Hunt Neil, Hyman David, Kilgore Leslie, Barton Richard, and Peters Gregory.

Application of Pearce & Robinson Strategic Management Model

      The mission of the company is to grow the streaming subscription business of the company globally. The vision of the company is to become the best global entertainment global business service for providing the best content around the world and creating new markets, which are accessible to the customers. The core values of the company are based on communication, judgment, reliability, passion, selflessness, intelligence, creativity, and productivity. The external and internal analysis has been performed in the next sections.

III External Analysis

Push-back from price increase

            The CEO of the company, Reed Hastings, had underestimated the pushback, which had been faced by the company as a result of Qwikster and the price hike of 60% for all those customers who wanted both the DVD and the streaming services. However, soon after the announcement of this news, the customers of the company and its current subscribers reacted with rage and they expressed that this increase in the price of the company was equivalent to a couple of Starbucks’ Lattes (Murph, 2011).

The stock price of the company fell by 19% in a day following this announcement and the company announced in September 2011 that it had lost a million subscribers in a quarter in 2011. The goodwill of the company impaired and the company lost a total of 800,000 members.. Like many other major companies, which have been built in Silicon Valley, NetFlix had also prided itself on being data driven and for using an analytical approach in order to make major business decisions (Minaya, 2015). However, Reed Hastings took a classic misstep; despite the reliance on the long-term strategy, the company had underestimated the unquantifiable emotions of the subscribers who still wanted the red envelopes with their DVDs inside.

Bad Publicity from New Pricing Structure

            The reaction of the split of the DVD service in the name of Qwikster and the streaming service was immediate and it was uniformly negative. The blog entry of Reed Hastings had been piled up by 10,000 commenters in two days. The reaction of Wall Street to the lost subscribers of the company was also unimaginable. Although, it had been always been known that the company was moving away from its DVD subscription model to streaming model, which was more lucrative for the company. However, Hastings seemed to have underestimated the emotions of the customers and the negative publicity, which would be generated by this bad decision of the company.

            The new pricing structure for Qwikster, in which the prices had been increased by about 60% made the customers sad. Furthermore, when Hastings apologized with the customers that he did not communicate with the users regarding the price changes, it made his customers even more upset. This resulted in a lot of backlash from the customers and most of the customers believed that this was not a disingenuous apology (Pelts, 2015).

The company also did not set up any Facebook page before making the announcement for Qwikster. The perception of the customers about Qwikster had been negative since its announcement as the suffix ‘ster’ has not done any favors to Napster either and this name also sounded dated (Kolpon, 2014). Most of the customers felt that this bad name had been given on purpose in order to kill the DVD business as soon as possible……………….

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