You have probably heard about customer discontent with Netflix’s latest price increase and separation of services. The company expects to lose about 1 million subscribers by the end of Q3 2011 due to the prices changes. On 9/16, the WSJ reported that the stock was down 44% ($169.25) from an all-time high in July ($304.79). I still remember 4 years ago when the stock was $18. It is still high, but the decline is significant.

The decision was driven by Hasting’s vision about the future where video streaming should dominate, but he seems to have ignored the present forcing an experience on its customers that they were not ready for yet. He admits a certain arrogance based on past successes. It is a pity he has fallen in the same trap that other companies that get too big and overconfident. He should learn from competitors’ mistakes that at one point were considered too big to fail.

In none of his comments and late apologies he made any reference to customer research and feedback so I assume this was absent or if done, totally ignored.

As a former Director of Research at Blockbuster Online, a direct competitor of Netflix, I can testify that our team knew better than changing the customer experience and prices without doing research. Of course there were other factors influencing pricing decisions, but customer feedback was the most important by far.

Never forget how a price change may affect customer perceptions and ultimately their experience with your service. In this case, Netflix users not only got higher prices but also more work to do. Those who want both DVD and streaming video content have now to manage two accounts.

If Netflix had done some basic research it would have come obvious that people want simple solutions, not more things to do. This was actually one the drivers that led us to develop Blockbuster Total Access, as service in which we combined the online and store experience in one. By the way, Blockbuster has been quick to offer a 30-day free trial of this service. I got this flier in the mail today.

As for pricing, there are several approached you can use in pricing research, but measuring willingness to pay is tricky and asking questions in a realistic context is key to get accurate results.

A method, we often used at Blockbuster Online was conjoint analysis, which gave us insights into customer experience and perceptions regarding the value of different service features in relation to its price through the trade-offs they were willing to make (e.g. number of DVDs at a time vs. price) taking into account other competing alternatives for watching movies in the market (e.g. video rental stores, video on demand, movie TV channels, Hulu, and even Netflix, etc.).

This approach proved to be invaluable then and continues to be so for many of my clients across industries. Although, conjoint analysis may be impractical in some circumstances (depending on the competitor landscape, product or service features or simply budget), the lesson here is to do research before making pricing decisions and while you at it don’t forget the implications for customer experience. No approach is perfect, but they may prevent you from creating a Neflix-like pricing and customer experience mess.

Update 10/10/2011: It seems that Netflix learned its lesson the hard way and now reversed its decision to split the DVD rental and video streaming services in two after the strong customer reaction. A little research could have saved Hasting all this headache and would have prevent Netflix from losing subscribers and revenue.

To learn about other pricing research methods check Pricing Research Overview.

Having a website for your business is a must these days. There are many options to create one. You can do it yourself or hire someone who can do it for you. Whoever does it, your website needs to:

TALK TO YOUR AUDIENCE

A website should be designed with an audience in mind. It’s probably not for your friends and family, so you need to gather basic insights into your target market, including:

• Demographics (B2C) / Firmographics (B2B)
• Shopping behavior (what, where, how often they buy)
• How they use products/services like yours
• Competitive alternatives used
• Unmet needs
• Willingness to pay for product/services like yours

CREATE A GOOD USER EXPERIENCE

With so many options available, user experience has become an important factor in attracting and retaining customers, no matter if your website is for e-commerce or just to inform about your product and services.

There are many factors that go into creating a good user experience, but here are some basic ones you should test, at least with concept testing if not with usability testing:

• Navigation
• Content organization
• Page objectives
• Eye path
• Colors
• Readability
• Multimedia use
• Search capability

PROVIDE RELEVANT CONTENT

Content is king these days. People are constantly looking for answers to questions and you want to be there to provide them. Content is more than filling space in your website.To be ahead of the competition, create trust and be relevant you need to understand what these questions are by studying your target market. With the help of analytic tools (e.g. Google Analytics, Woopra, Omniture, Webtrends, etc.) you can track popular search terms in your product category, but you will learn tons by listening to your audience using qualitative and quantitative research.

BE UNIQUE

Being unique is not about having a flashy website, but providing a different user experience while meeting your audience’s needs. Note that uniqueness can work against you, if you try to break the rules in a way that confuses and frustrate your audience. You can create uniqueness through content, layout, and graphics, but never forget your audience. How can you know what works? Test, test, test.

RESIST THE PRESSURE

Entrepreneurs are often pressed to put up a website quickly and cheaply. Small budgets and the pressure to go to market as soon as possible often drive them to ignore some these issues. However, overlooking them will have a negative impact on your business and cost you more in the long run in terms of lost revenues and additional costs to redesign the website.

IN SHORT

Invest in testing upfront during the design phase before wasting time and money on developing a website that won’t work for your business.

To see an example of the test we did for our own website check: Web-Site Optimization Research