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Netflix Saga: A Customer Experience Perspective


My last blog described a new “Customer Experience Framework” (read it here), that companies could use to understand their customers’ experience. In this blog, I use this framework to illustrate the affect recent Netflix fiasco had on customer experience.

In 1990’s Blockbuster used to dominate the video rental marketplace. They had shops that were conveniently located in many neighborhoods and rented good quality movies . Figure below depicts the Customer Experience delivered by Blockbuster during that time period.

Blockbuster was really strong on four dimensions of customer experience, Requirements, Price, Quality and Brand. Blockbuster met customer requirements by having a wide genres of movies available for diverse customers. The price of renting a video was less than the price of watching it at the movie theater, which greatly appealed to families. They made sure that  video quality was good. And Blockbuster built enough trust and brand value to support its place in the market. Though the above four factors were working well for Blockbuster, a few factors went against it. For one it was not convenient to rent or return movies from Blockbuster. Rain or snow, renters had to make sure that they drop the movie back on time or they were charged a late fee. Second, availability was a suspect, as the movie that customer wants might not be available. Third service was weak as customers had to wait in long lines during typical renting periods (i.e. Friday nights). These three factors caused enough bad customer experience for Blockbuster’s customers. But since Blockbuster offered customers good experience across four important factors customers continued to rent movies from Blockbuster.

Enter Netflix, after a few trials at their business model in early 2000 Netflix started flat monthly fee unlimited rentals with no late charges or due dates. Every customer could check out three DVDs at once which would be refilled with movies in the queue once any DVD was returned. Figure below depicts the customer experience delivered by Netflix during its initial days.

Though Netflix did not have much Brand recognition, it made sure that it competed on 4 other factors of customer experience, i.e. Requirement, Price, Quality and Convenience. Netflix started offering a good selection of good quality movies across diverse genres. They made it easy for the customers to rent and return DVDs from Netflix, as the DVDs showed up at customers’ door steps. They made sure that customers’ monthly cost of movie rental remained flat and customers were not penalized for not returning the movies on time, which made them better on price dimension than Blockbuster. So frustrated Blockbuster customers started switching to Netflix as now there was an alternative that could offer them better customer experience.

As Netflix started getting more customers, it added brand factor to the customer experience (i.e. customers could now trust Netflix with their credit cards and their information). But pretty soon Netflix realized that they had left the Availability gap in their customer experience. There were some smart customers who maximized their 3 DVDs, with two DVDs in transit (one outbound and one inbound) and one always available for viewing. But not all customers are smart, so many ended up having 3 DVDs with them at once and no DVDs for a next 3 – 5 days. This availability problem could have hurt Netflix, but they plugged it by offering online streaming for a few more dollars per month. So Netflix’s customer experience chart looked something like the figure below.

Now Netflix delivered strong customer experience over six factors, Requirements, Price, Availability, Convenience, Quality and Brand. They also did a decent support job that enhanced the customer experience. This level of customer experience changed the rental landscape and Netflix grew to become a market leader. At the same time, Blockbuster struggled to deliver the right customer experience, started losing customers and struggled financially.

But delivering strong customer experience across six factors and decent customer experience across one more factor is not easy. Netflix realized this in mid 2011, when they saw the financial strain of delivering this customer experience. Given that their main competitor was out of business, they tried to redefine their customer experience. They increased prices by ~60%, and planned to separate their online and DVD by mail businesses into two separate businesses. This would need customers to create two different logins (one with Netflix and other with DVD by mail business Quickster), and keep up two different accounts. Due to customer outrage they backed off from their plans, but had they gone ahead with plans their customer experience graph would have looked like in picture below.

By increasing the price, Netflix is delivering some bad customer experience as customers are forced to pay a price point that is higher than what they have been paying for years. But separating online and DVD offering, they would have recreated the availability problem. Not all movies/shows are available online and managing the flow of DVDs requires some smart management. Having two separate accounts with two different companies with no customer data sharing between both would have made it really inconvenient for the customers as well. Also parental control that is not easy to use and inability to group/show list of recently watched movies creates a convenience barrier.

Though Netflix has backed off its plan to separate the business, the increase in prices has forced many customers to choose just one service. Because of this forced choice, Netflix is delivering the customer experience a depicted in the picture above. It is strong across 3 factors (Requirements, Brand and Quality) and decent enough on 2 other factors (Service/Support and Convenience). But as the downfall of Blockbuster thought us that being good on 3 factors is not good enough. So customers have to wait for Netflix to improve its performance across more factors or wait for an innovative company to disrupt video rental marketplace.

Please share you thoughts about this blog and “Customer Experience Framework