February 21, 2012, 12:38 PM

Consumers’ satisfaction with Netflix nosedives

The video rental service drops to last place in a satisfaction survey.

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Netflix Inc. may suffer long-term damage due to pricing and business model changes made last year, according to the latest annual e-commerce report from the American Customer Satisfaction Index and ForeSee, the research firm previously known as ForeSee Results.  The index, released today, shows that Netflix dropped to last place among e-commerce companies in 2011 from second place in 2010 in customer satisfaction

Netflix’s consumer satisfaction score dropped 14% to 74 from 86, as measured on a 100-point scale. In 2011, Netflix raised prices 60% and eliminated plans that combined online video streaming and DVD-by-mail into separate subscriptions. “Netflix’s fall from grace was predictable given their missteps, but shocking in its degree of severity,” says Larry Freed, president and CEO of ForeSee. “Though they’ve gained back many of the subscriber losses, it remains to be seen if Netflix will be able to satisfy them enough to keep competitors like Amazon and Hulu at bay. These results suggest that Netflix is vulnerable,” he says.

One threat may be Amazon.com Inc., which retained the top spot in the index with a score of 86, down one point from a year ago. Amazon has been rapidly adding content to its own streaming video service; it now has more than 15,000 movies and TV shows available. Netflix says its streaming catalog contains thousands of movies and TV shows but does not disclose the total. In its 2011 annual letter to investors, Netflix CEO Reed Hastings said Amazon’s streaming catalog had a fraction of the amount of programming available on Netflix.

Freed says Amazon continues to be the standard by which consumers measure their satisfaction with all other online retailers. “Amazon’s focus on the long view is in line with ACSI’s data and research, which suggests that by setting the bar for customer satisfaction in online retail, it is securing customer loyalty for the long term and effectively defending against competitors,” he says.

Consumer electronics merchant Newegg Inc. came in second place for overall satisfaction among e-retailers in the annual report with a score of 85, up one point from 2010. Discount e-retailer Overstock.com came in third with 83, the same score it received in 2010. The aggregate score for customer satisfaction among all online retailers in 2011 was 81, up one point from 2010, ACSI says. The greatest year-over-year improvement came from the “all other” category, which includes smaller e-retailers and other companies not individually measured. The satisfaction score with this category of e-retailers was 80 in 2011, up from 78 in 2010. The ACSI considers a score of 80 or greater superior.

Online retailers have the highest aggregate satisfaction score across all e-commerce industries tracked in the survey, 81, up from 80 in 2010. The aggregate satisfaction score for online financial services providers in 2011 was 76, down two points from 2010. The aggregate satisfaction score for online travel providers in 2011 was 78, the same as in 2010.

Neither Netflix, No. 13 in the Internet Retailer Top 500 Guide nor Amazon, No. 1, provided immediate comment about the results.

For the annual e-commerce report, ASCI says it only includes scores for individual companies with the largest market share, although dozens of smaller e-retailers are included in the “all others” category. Scores from all the e-retailers are used to calculate the aggregate score. Neither ForeSee nor ASCI said how many companies are included in the Index.

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