Netflix stocks reacted positively to the news that the United States Postal Service (USPS) will be cutting its mail service from six days a week to five days a week. The rationale presumably is that the cuts in postal delivery could result in subscribers watching fewer DVDs thereby resulting in lower costs for Netflix.
What about customer satisfaction levels and churn? If the heavy users become upset that these delivery schedules are not appropriate, then seeking out new partners such as UPS or Fedex could become a very expensive proposition for Netflix. If Netflix decides to stick with the current strategy of delivering only through USPS, then these gains obtained through lower costs will be partially offset by loss in revenues from subscribers who value delivery speed.
This move by USPS is really good news for Netflix. Currently Netflix is straddling between its DVD-by-mail and video streaming businesses. USPS could be the proverbial last straw that broke the camel’s back by forcing Netflix to eliminate its legacy structures including DVDs and warehouses and focus on digital content. Hopefully this decision by a valued partner will help Netflix find its magic once again.
Professor of Business Administration and
James F. Towey Faculty Fellow and
Executive MBA Academic Director