What Netflix Can Teach You About Your Photography Business

I was listening to NPR one day while driving, and they were reporting on how significant it was for Netflix to receive 14 Emmy nominations for just being a streaming service. It was quite a feat, given what Netflix as a company has been through the past few years. And then, the reporter something that sparked the idea for this blog post.

Remember when Netflix only offered DVDs through the mail?

It immediately struck a cord with me and how this relates to the photography industry. Prints are just like the DVDs sent through the mail. I don’t know about you, but I knew of at least 2 or 3 people who would get their DVDs in the mail, rip them to their computer, and send them back without even watching them. Completely illegal and violating copyright laws.

Sound familiar to what we photographers deal with when selling prints and people scanning them to their computer?

In the photography industry, there is an obvious consumer demand for digital files. While some photography businesses can still operate without offering digital files, there is growing pressure from consumers to provide digital products.

Back to Netflix… the company noticed this trend and decided to capitalize on the demand people wanted to watch movies whenever they wanted. In 2007, they launched their streaming service, only viewable on a computer. As most of us know, it eventually expanded to TVs and mobile devices.

Sales and stock for Netflix was doing phenomenal. Their stock was at an all-time high of $300 and was gaining about 1 million subscribers every quarter, until… the company made a seemingly disastrous decision.

In July of 2011, Netflix announced on their blog a split between their streaming service and their DVD mail service into two separate entities.

They essentially doubled the price for their subscribers, without increasing value.

Current subscribers who received streaming and DVDs in the mail now had to pay for both if they wanted both. Or, if you want to look at it another way, they took away whichever one you were willing to part with and pay just a few dollars less per month.

Why did they make this decision? The CEO saw the trend in consumer demand transitioning from DVDs to streaming and wanted to get a head start on it before his competition did. He saw that keeping both services together for one price was not going to be profitable in the long run.

It was a gamble the company paid for dearly. Nearly a million people unsubscribed and the stock plummeted. People were predicting a possible end to the company. Another consequence of this decision is it opened the door to competitors like Amazon and Hulu. The subscribers that left Netflix had to take their streaming business somewhere else.

Throughout the next 2 years, Netflix tried to recover. I’ll get to that more in detail later on…

How does this relate to my photography business?

Many of you reading this blog post have gone through some type of pricing transition. For those of you who have significantly increased your prices…

What happened to your clients? Did they suddenly “unsubscribe” from your business?

How did you go about telling your current clients? Did you blindside them with a blog post or make it a gradual transition? Did you tell them at all or just raise prices quietly?

Netflix made a critical error of making the price increase too casual of an announcement to their subscribers. And, the CEO made the assumption customers would feel this was still a good deal even after the split and price increase. He certainly did not do his homework on Netflix’s customers. Analysts agree if the announcement would have been done more gently, the fallout may have been contained better.

Read more about when it’s time to raise your prices for your photography business and how to do it gradually, profitably, and effectively.

What happens next is a vital decision for your company.

When any business makes a decision to raise prices, how a business responses based on their customer’s reaction can indicate the longevity of the company.

Here are some possible reactions a company could have:

1. Decrease prices.
2. Continue operating with no changes at all.
3. Offer deals to lure lost customers back.
4. Increase value.

If you decrease prices, you are backtracking on your decision.

If you continue operating with no changes at all, you take the risk your business will not gain any new clients at your new pricing.

If you offer deals to lure lost customers back, you are essentially decreasing your prices. To ultimately stay at your new pricing, you will eventually have to stop offering the deals.

If you increase value, now you are getting somewhere. This tells your old, lost clients that you have something more to offer, and entices new customers to book your services.

How did Netflix react to their customer’s reaction?

At first, Netflix acted erratically. They attempted to appear calm and collected about it, but it was obvious the immense consumer dissatisfaction surprised the company.

The CEO apologized to subscribers for their decision. And, Netflix attempted to show increased value. Qwikster, their new name for their now separate DVD-by-mail service, was announced sloppily a month earlier than originally planned. The name “Qwikster” was quietly shut down 3 weeks later after realizing it was a complete bust, and it didn’t do anything to change consumer confidence in the company.

After 4 months, their stock was down from an all-time high of $300 (just a day before the pricing announcement) down to a low of $63.85.

Netflix could have folded at this point. Or at least, they had a very, very uphill battle in front of them. Throughout this pricing transition, the company lost some important board members, as well as 150 employees of the now eliminated Qwikster, most of which came from Netflix. There were business analysts predicting a possible end to Netflix at this point.

What they did next is the ultimate business lesson.

After those 4 months, the company kept major, outward changes to a minimum. Instead, they focused on increasing value and finding an alternative way to gain those lost subscribers back.

With the growth of Amazon and Hulu from the 800,000 subscribers from Netflix, competition over licensing of popular shows became intense. While they continued to add new and better content, Netflix knew that the only way to gain their market share back was to differentiate themselves from the competition.

They analyzed what their viewers were watching and what shows/movies were popular. Then, they created their own TV shows viewable to those who had Netflix subscriptions.

Netflix made current subscribers feel like a VIP for having special-access to these shows.

It was expensive, but the company did it right with top-knotch actors and actresses. It was definitely another gamble… but this one paid off.

House of Cards, Arrested Development (new episodes viewable only on Netflix), and Hemlock Grove all secured Emmy Nominations for a total of 14 for Netflix. It made television history, even though you don’t have to watch these shows on a television. 🙂

Wall Street still isn’t impressed, however if Netflix continues down this path of adding successful TV shows, it could swing things back in their direction.

Again, why is all of this important for my photography business?

Even though Netflix is a huge, public company that deals with millions of dollars and subscribers, it doesn’t mean you can’t learn something from the company for your business. Here are the main takeaway point from the mistakes and the start of the recovery of Netflix:

1. Think carefully about a price increase. Is it necessary? Is the timing right? Are you going to scare away most of your client base? Is it your plan start over and move to a new customer type?
2. Listen to your current customers if you do not want to loose them, but only if they are your ideal clients. Can they afford a price hike?
3. Announce the price increase gently. Give your clients a chance to let the new price change sink in.
4. Make sure to include an added value with the increase. It can be a new product offering or a unique product that only you offer. The value the customers receive should equally match the increase in price, i.e. don’t include something minimally valuable and then double prices.
5. Follow through confidently. If you take the time, analyze the market and your clients, and increase your prices with care, there should be no turning back or regrets.

Other businesses can teach you about your business!

Just because it isn’t an apples to apples comparison, every business can have a lesson for your photography business. Whether it’s how a company markets or advertises their business or how they treat their clients, you can apply it directly to your business! Have you learned a business lesson from another business? Did have an impact on your photography business? Share your thoughts below!