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Why Groupon Is Customer-Friendly and Netflix Is Not

Why Groupon Is Customer-Friendly and Netflix Is Not

As a customer, my biggest complaint about Netflix has been the mediocrity of its streaming video library. I tolerated that because it gave me instant access to at least some movies while I waited for higher-quality titles to arrive in the mail. Under the new model, I either have to constantly wait for a decent movie to arrive by mail or be confined to a library of lesser content. Neither scenario is satisfactory.

By Sidney Hill E-Commerce Times ECT News Network
07/15/11 5:00 AM PT

This week, I got emails announcing changes to two online services I subscribe to.

I just sort of shrugged at one message, though it did represent a significant change in the service's business model. The second email outlined a major change as well, but my reaction to it was much stronger. It ticked me off.

The first message was from Groupon, informing me of changes to its Privacy and Terms of Use policies. The second one was from Netflix, telling me it was revamping its pricing plans.

The reasons behind these changes are easy to comprehend. These companies need to boost revenues and, ultimately, increase profit margins to survive over the long term.

Divergent Approaches

I found it interesting, however, that the manner in which these announcements were handled gave the appearance that one of these companies values good customer relationships while the other does not.

Groupon at least tried to take a customer-friendly approach to what could be a touchy subject -- telling people it's going to start collecting more personal information about them, including snagging their current location when they access the Groupon site from a mobile device.

This was the message I shrugged at. Like most people, I've become accustomed to the idea that Web-based businesses want to collect information about me. Unlike most people, though, I know how to take steps to limit the amount of information that gets collected.

Still, I appreciated Groupon giving me a heads up on the changes. I also liked the link it provided to a page that summarizes changes "in plain English" for people who don't care to wade through the legalese in the official Privacy and Terms of Use statements.

Netflix didn't use legalese to announce its pricing changes, but it did employ a bit of doubletalk.

"We are separating unlimited DVDs by mail and unlimited streaming into two separate plans to better reflect the costs of each," the Netflix email reads. "Now our members have a choice: a streaming only plan, a DVD only plan, or both."

Take It or Leave It

The message goes on to outline my choices, which boil down to this: If I settle for half the service I'm getting now, it will cut my monthly bill by US$2.00 -- from $9.99 to $7.99. But if I want to keep my current level of service, I have to pay $15.98 per month.

At least Netflix seems to know what I might be contemplating, since the message provides links to the portion of the Netflix site where I can change or cancel my service. This, obviously, is the message that ticked me off, and I'm not alone.

When I last checked, more than 5,000 comments had been posted underneath a Netflix blog post explaining the new pricing plans, and none of the comments I read have anything nice to say about the changes. The general sentiment is irritation with Netflix for telling its 83 million customers, in essence, "Here's what we're giving you. Take it or leave it."

That's exactly what I felt Netflix was telling me, and I have a theory as to why it's taking such a callous approach to introducing these changes, while Groupon is doing the opposite.

Responding to Competition

My theory is this: Groupon is by far the largest daily deal site, but it knows there are hordes of companies -- large and small -- trying to encroach on its territory. To stave off that competition, Groupon needs to be able to offer better deals across more platforms. That's why it needs to collect more information on its customers.

Collecting geolocation data, which is potentially the most controversial of the new policies, is essential for the new Groupon Now service, which is designed to send customers instant notifications of discounts for businesses near where they happen to be at a given time.

Groupon also recently announced a partnership with Expedia, which is probably the first of many such arrangements, and it will need to have as much information about its customers as possible to make such partnerships pay off.

With all this at stake, Groupon can't afford to alienate customers. It also obviously has learned from the mistakes Facebook has made in changing privacy policy without notifying users.

This approach should help Groupon garner some customer loyalty, which will be extremely important as the online coupon business becomes more competitive.

A Cavalier Attitude

Netflix, on the other hand, is not facing the same level of competition. There are other Web-based video services out there, but none has anywhere near the 83 million subscribers that Netflix claims. Therefore, Netflix is not feeling the same pressure to be nice to its customers; thus the cavalier attitude about its new pricing plans.

If Netflix wants to maintain its market leadership over the long term, however, it's going to have to do more than just change its pricing model. It will have to upgrade its content as well.

As a customer, my biggest complaint about Netflix has been the mediocrity of its streaming video library. I tolerated that because it gave me instant access to at least some movies while I waited for higher-quality titles to arrive in the mail. Under the new model, I either have to constantly wait for a decent movie to arrive by mail or be confined to a library of lesser content.

I haven't decided which way to go yet -- but I know that either scenario will leave me less than satisfied, and at some point I'll have to seek other options for video entertainment.

The majority of posts on the Netflix blog express a similar sentiment.

One of the nicer comments is from a woman in Lorain, Ohio, who wrote this: "Netflix: I have found your streaming service, although convenient, does not offer the vast selection of your DVD plan. You want more money . . . I require the same availability of movies via streaming. You don't deliver. I cancel my membership."

In other words, Netflix, if you want loyal customers, you need to treat them right. Groupon is at least trying to do that.


E-Commerce Times columnist Sidney Hill has been writing about business and technology trends for more than two decades. In addition to his work as a freelance journalist, he operates an independent marketing communications consulting firm. You can connect with Hill through his website.


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