Yet another mishap for Netflix

Here is my prediction for 2012: Netflix is going to find itself in serious financial trouble. The predicted problem will have little to do with existing customer’s appreciation of the company’s service, and a lot to do with its continued strategic missteps. This time the misstep is to launch the service into the UK.

Launching your brand into a market where an established incumbent already owns your existing positioning is one of the biggest gaffs you can make in global marketing. Time after time, companies have fallen into the same trap. Just because you made it to leadership position in one country does not mean you can repeat the same success in another, particularly when a well-funded competitor is already making a name for itself providing the same service. So going up against Amazon’s LOVEFiLM and British Sky Broadcasting sounds like a familiar mistake to me.

Need convincing? Well how about Walmart’s foray into the German market which saw the brand admit defeat in 2006 after eight years of trying and at the cost of $1 billion? Why? Because Germany’s value retailers like Aldi and Lidl were already well established. Limited inventory, not just aggressive buying and economies of scale, meant the German retailers were more than happy to compete on price and win.

Ah, but this is the Internet. Everyone knows you can’t apply the same rules to the Internet as you can bricks and mortar stores. Netflix is not launching its Blockbuster-killing DVD service in the UK, rather it is going straight to streaming, no doubt hoping to take advantage of the high broadband penetration in that country. Think again. Even the mighty Google has struggled to make headway in China, where domestic brand Baidu owns the same position that Google does in North America and much of Europe.

They say that pride comes before a fall, but I thought we had already seen Netflix trip over its own success in the ill-fated Qwickster episode. One of the most telling signs that hubris still rules at Netflix is that the company’s chief executive, Reed Hastings, said that Netflix would rely predominantly on word-of-mouth recommendations to drive uptake in the UK. Can someone tell me why anyone would recommend Netflix versus the other incumbents? My bet is that LOVEFiLM, which now has 2 million subscribers in the UK, is going to give Netflix a run for its money, as signaled by announcing a price cut and a planned new TV campaign.

I love the Netflix service and would not want to be without it here in the U.S., but at this rate, I seriously fear for the company’s continued well-being. What do you think?