Trust Begins at Home—Netflix’s Approach to Building Customer Relationships

Internet companies, unlike traditional bricks and mortar businesses rarely, if ever, have face to face interactions with their customers. This poses a unique challenge with respect to building trust with customers, which is critical for maintaining the strong relationships required for long-term success.

 

Trust Begins at Home—Netflix’s Approach to Building Customer Relationships 
By Kira Busch

Today’s businesses leaders face a number of emerging challenges related to advances in communications technology. Internet companies, unlike traditional bricks and mortar businesses rarely, if ever, have face to face interactions with their customers. This poses a unique challenge with respect to building trust with customers, which is critical for maintaining the strong relationships required for long-term success.
Building trust with customers
Netflix, the world’s largest online movie rental service, has taken an innovative approach to building trust with a large customer base that has little personal interaction with its employees. Its strategy is to build trust with customers to develop and grow a strong company culture where employees are expected to “understand [Netflix’s] strategy, market, subscribers, and suppliers” and to “inspire others with [their] thirst for excellence” (Netflix 13, 16).

Netflix’s approach rests on the assumption that the health of a company’s relationships with its customers is inextricably linked to the health of its internal culture. Reed Hastings, CEO and creator of Netflix, and his management team have developed a culture that aims to “increase employee freedom as [they] grow… rather than limit it, to continue to attract and nourish innovative people, so [they] have a better chance of long-term continued success” (Netflix 40). Reporting on Netflix practices, BusinessWeekcorrespondent Michelle Conlin says, “Hasting pays his people lavishly, gives them unlimited vacations, and lets them structure their own compensation packages. In return, he expects ultra-high performance” (Conlin).

Salaried employees at Netflix can choose the structure of their compensation, deciding the percentages of salary and stock. In 2008, 47% of employee compensation was partially tied to company profitability (Holland). Connecting the two serves to both motivate a solid work ethic to drive the company’s success and retain employees, as they become reluctant to leave the benefits of their company’s great return. Todd S. Yellin, a filmmaker who was hired by Netflix to improve its online movie recommendations says, “I am given the freedom to do what I do well without being micromanaged” (Conlin).

Employee freedom is also reflected in Netflix’s unique vacation policy. Its policy is simple: “Take as much as you’d like. Just make sure your work is done” (Blitstein). Hastings believes that vacation limits and in-office requirements are “a relic of the industrial age,” and he shudders at the request to “give Susie a huge raise because she’s always in the office” (Blitstein). Netflix’s culture of employee autonomy has endured because the company “trusts its employees to take whatever vacation they feel they need” (Seidman).

While Netflix faces stiff competition from the likes of Blockbuster and Amazon, its investment in its company culture seems to be paying dividends in terms of customer satisfaction. The company is the nine-time consecutive winner of the ForeSee Results Top 100 Online Retail Satisfaction Index, an annual metric that is based on “the scientific methodology of the American Customer Satisfaction Index (ACSI), which predicts sales, loyalty and word of mouth recommendations” (Forseeresults Web Site).

The trust Netflix places in its employees seems to extend to the company’s relationships with its customers. For example, the company does not charge its customers for a lost movie as long as the subscriber’s account is open and there is no pattern or history of lost discs. If and when discs lost in the mail are received by the company, the customer is quickly notified that the disc has been found (Netflix Web Site).

By building a culture that values freedom, responsibility, and perpetual excellence in customer satisfaction, Netflix has successfully cultivated strong bonds of loyalty and trust with its customers. As noted by Andrew Wicks, associate professor of business administration and director of the Olsson Center for Applied Ethics at the Darden School of Business, academic research confirms that trust is both the foundation for enduring relationships and the platform for risk-taking that leads to innovation (Wicks). While Netflix’s strategy of leveraging a strong company culture to build trust with customers may resonate most strongly with Internet companies, it is also relevant to bricks and mortar organizations. The lesson here is that trust begins at home.

Sources:

Blitstein, Ryan. “Work Zone: A bottomless well of vacation time,” Pittsburgh Post-Gazette 2 April 2007:http://www.post-gazette.com/pg/07092/773993-28.stm#ixzz0SWCX0I9B (accessed September 29, 2009).

Conlin, Michelle. “NETFLIX: FLEX TO THE MAX,” BusinessWeek 24 September 2007: 72.

Forseeresults Web Site: http://www.foreseeresults.com/Form_Top100_May08.html (accessed September 30, 2009).

Holland, Kelly. “When the Share Price Is a Factor in Pay,” The New York Times 27 April 2008: BU.

Netflix Internal Slide Presentation on Company Culture, Reference Guide on Our Freedom and Responsibility Culturehttp://www.slideshare.net/reed2001/culture-1798664: Slides 1–128 (accessed September 2, 2009).

Netflix Web Site, “Terms of Use” http://www.netflix.com/TermsOfUse?lnktrk=PUD_TOU#how (accessed September 2009).

Seidman, Dov. “Building Trust in Business by Trusting,” BusinessWeek 27 August 2009:http://www.businessweek.com/print/magazine/content/09_36/b4145076753447.htm (accessed September 2, 2009).

Wicks, Andrew. “Stakeholder Responsibility with Andrew C. Wicks” Masters Seminars in Business EthicsBusiness Roundtable Institute for Corporate Ethicshttp://www.darden.virginia.edu/corporate-ethics/Video_Stakeholder_Responsibility/index.html (accessed September 23, 2009).

Key Words/Terms: 
innovative, building trust, company culture, compensation, customer satisfaction

Organizations: 
Netflix, Blockbuster, Amazon, ForeSee Results, Olsson Center for Applied Ethics

People: 
Reed Hastings, Netflix CEO; Andrew Wicks

One thought on “Trust Begins at Home—Netflix’s Approach to Building Customer Relationships

Comments are closed.