Dying a Qwikster Death

Article first published as Dying a Qwikster Death on Technorati.

Reed Hastings, CEO

It was a death that most everyone knew was inevitable. The ill-conceived direct mail spin-off of Netflix, Qwikster, has been declared dead only a month after its creation. Brian Stelter of the New York Times covers it deftly in his Media Decoder column. While this is a catastrophic and high-profile failure, we see this same type of mistake daily in companies big and small. Reed Hastings, CEO of Netflix is attributing it in his press release to moving too quickly,

“Consumers value the simplicity Netflix has always offered and we respect that. 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.”

There is no doubt that they moved to quickly, but speed doesn't kill, if you don't make the other mistakes they made. Hidden in the multiple missteps of bad naming, terrible branding, bad launch strategy, poor planning and unsatisfying public relations management are two key failures.

Failure #1:   They lost sight of their company vision in making this decision.

Mr. Hastings stated in the 2003 Netflix Annual Report that the vision of the company was to create "the best movie experience.  Period." A laudable goal and a worthy one. The company abandoned this vision in an attempt to advance the company to what future customers will demand. The problem with that is that their customers are not future customers, they are current customers. Anyone who uses Netflix will tell you that the online streaming library is far from "The best movie experience." It lacks many current films and TV shows as well as many classics and art house films. The consumer does not want to hear excuses. There are valid ones about licensing, Hollywood studios being difficult and cost-revenue factors. It is not the consumer’s responsibility to understand your company’s challenges. All they are required to do is determine if your company vision matches the experience.

Failure #2: They forgot that the customer comes first.

It’s an old adage, but a very important one. Simply put, they placed revenue and expense at the forefront of boardroom decision making. Evert decision should start with the questions "what will make our most loyal customers love us even more? What will make our former customers love us? What will convert new customers over to us?" Those questions are the first litmus test. Once those ideas are on the table is when you sharpen the pencil and determine what makes the most financial sense for the current landscape and into the future.

Failure to Launch. Now on Netflix

So what should have Netflix done? I guess the better question is, what should Netflix do now? The reality is that the mail order DVD business is dying. No doubt. They need to exit it. Perhaps they felt that a quickie (pun intended) rebrand and spin-off would allow them to make a value sale of that portion of their business. This was not the way to do it. The value of their DVD business was in the brand of Netflix which they are not willing to sell and the infrastructure. Most possible buyers would have bit on a sale as-is, without a spin-off business. Netflix should invest in more streaming films, better software and distribution services, better search and viewing features and so on. They should make streaming the best it can possibly be.

Second, Netflix should consider a tiered Premium service for streaming customers. Offer exclusive content, preview viewings of new releases and even live streamed content. Make it a real and worthwhile premium product. At the same time, they should slowly continue to ramp up the pricing of the DVD mail order product. Over the course of a year or two the price will have steadily climbed to a point in which a smaller user base is paying a premium for the service. It will then become an "exclusive" service versus a lag service.

The Qwikster death should certainly be a reminder to all businesses that they need to reflect on their vision and customers before making any decision.   

The Yelp Effect

Article first published as The Yelp Effect: Leveling the Playing Field for Independent Restaurants on Technorati.

 A new study by the Harvard Business School seems to show that Yelp.com is helping to level the playing field for independent restaurants. The unique study shows that for every one-star rating increase in a restaurant review on the site, a restaurant achieved a 5-9% sales increase. This was not the case for chain or multi-unit establishments. Thus we are seeing a clear independent bias in consumer activation from Yelp. The study, available at http://www.hbs.edu/research/pdf/12-016.pdf uses Seattle as their study area.

When you dig into the numbers, it becomes apparent that Yelp has certainly allowed independent restaurants with limited marketing budgets to gain a presence in the marketplace more broad than they would have had otherwise. Prior to the proliferation of Yelp and other self-review sites, more traditional media was limited in the number of restaurants they reviewed. This allowed a few to gain wide exposure, while most went unnoticed to the masses. Chain restaurants did not benefit from Yelp primarily because they are already in the paid media channels establishing their message. Thus, you cannot benefit from an "organic" reputation while also controlling your reputation via paid media.

This success cannot be all attributed to Yelp however. The market they used for their study is a very strong independent restaurant city. It also is a tech savvy city with higher internet and social media penetration than the National average. During the study period we have also witnessed a strong growth in the "locavore" movement. The media coverage of this trend certainly has benefited independent restaurateurs. Finally, while Yelp is a popular site (nearly 500,000 daily unique users) when you break the searches down to local metro areas it is hardly a majority of patrons using their service. So what can we learn from this?

No one channel can make a restaurant a success. A clear brand message is still key. Establish that message via social media and utilize Yelp as a validation source. Reward loyal customers and turn them into brand advocates, extolling the qualities of the experience not just in an online review, but via social media and offline social circles. In short, Yelp is a tool and a reflection of the overall experience.