Netflix has figured out that people are very upset about its decision to split streaming video and DVD delivery — a decision that got it in huge hot water earlier this year. Customers who had previously gotten both streaming and DVDs for a single price would now have to pay separately. If you only use one or the other, you could pay less, but if you still wanted both, you'd pay more.
The Netflix response? Separate the businesses even more. In a new blog post, Netflix co-founder Reed Hastings explains that for some reason, he has concluded that separating the businesses completely is going to help people understand what's going on. Thus, Netflix will not send DVDs at all anymore but will only provide streaming, while the company's DVD business will happen under the new "Qwikster" brand.
Hastings seems to be operating under the premise that customers don't really understand what's going on; that they are angry because they think that a single business has increased its price when in fact it has merely split into two businesses that charge separately. Presumably, the idea is that making the split more definitive will make people slap their foreheads and say, "Oh, now I see. Netflix actually lowered its prices, as long as I don't buy Qwikster! And new Qwikster is cheaper than old Netflix! I'm coming out ahead, sort of, if I don't want all the services I used to get!"
The only problems with this approach are that its underlying assumptions are almost certainly wrong, and that it ignores major inefficiencies that will be introduced for customers who do, indeed, want to continue to use both streaming and DVDs. Now, if you want both, you have to go to two different sites with two different queues, you have to pay two different charges to two different entities, and in general, you have to have two different memberships. That's not psychologically better for consumers. That's buying two things which are both less helpful than the single thing you could get before.
It's like a shoe company deciding to sell right shoes and left shoes for 12 dollars each where pairs of shoes used to be 20 dollars and thinking that consumers will notice the lower 12-dollar price but not the fact that it buys only one shoe.
And it has to be said: It doesn't help that the word "Qwikster" sounds inherently faddish and goofy, like the very last word of its kind they could make out of the correct phonetic elements that wasn't already trademarked.
The inconveniences, in other words, are real and tangible and instantly noticeable, but the advantages are cosmetic. They're trying to train people to think of these as two different things, streaming and DVD renting, and that's fine. But when you do it at the expense of convenience and ... well, expense, then you can't expect it's going to solve your customer loyalty problems.
Netfllix is not without competition in streaming video. Amazon is in the game, Hulu Plus is in the game, Apple is in the game, and more entrants are certain to come down the pike. More and more customers have stream-to-TV devices like the Roku that allow them to pick a new service essentially whenever they want with almost no fuss. They are at a very, very delicate point. It's certainly a bold move to abandon the image that lies at the very heart of their brand — the red Netflix envelope will cease to exist, replaced by a red Qwikster envelope — but at first glance, it seems wildly unlikely to satisfy customers who are still well aware of what a price increase looks like.