When a Mea Culpa Backfires

In this age of social networking and direct connection and communication with your actual customers, an apology letter from a company's CEO that is emailed to all of its service subscribers is a good thing, right?  Well, that depends on the content of the letter, as content still is king in the social networking world.  

Reed Hastings, co-f0under and CEO of Netflix is learning this the hard way.  One of  my marketing colleagues, Everett Brooks, forwarded to me the email he received from Hastings, wondering what I thought about it from a communications standpoint. Here is the email:

I messed up. I owe everyone 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. I’ll try to explain how this happened.

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.

When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong.

In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, “Actions speak louder than words,” and we should just keep improving our service.

But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why...

He then goes on to explain in great detail his new business model and why it makes sense for Netflix as a company. 

Mistake number one: Know your audience.  This email was addressed to customers who like to watch movies.  It was not meant for shareholders who care about the business model. 

Mistake number two: As an Ad Age article on this situation accurately described, customers who read the first line of the so-called apology may have assumed there was something in it for them.  Some free months of service, perhaps?  Or a discount to stick with the new approach of separating the DVD and streaming businesses?  But when they read further, they realized they were being rewarded for Hastings' admitted mistake by getting a written primer on his business decision-making.   Customers could care less.  They just want the service they want in the format they want it.  They like discounts and special deals.  They want convenience and appreciation for their support.  Everything else should be saved for the company's annual letter to shareholders.

Should CEOs stop communicating directly with customers when the situation warrants this direct connection?  Absolutely not.  But the CEO needs to make sure she or he has the best read of the customers' viewpoint and anticipated reaction to a particular situation before making contact. 

And while I'm thinking of it, Red Sox management should keep these tips in mind if they need to communicate with frustrated members of "The Nation" in the next couple of weeks.