The New York Times
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August 16, 2007

At Netflix, Victory for Voices Over Keystrokes

By KATIE HAFNER

HILLSBORO, Ore. — Megan Funk had been on the phone for 30 minutes and had already untangled one billing knot, listened to a woman insist that she had returned a Pilates DVD when it was clear she had lost it and received one request to replace a cracked copy of “Hotel Rwanda” and another to replace a disappointing husband.

Ms. Funk is one of 200 customer service representatives at the Netflix call center here, 20 miles west of Portland, where she is on the front lines of the online movie rental company’s efforts to use customer service as a strategic weapon against Blockbuster’s similar DVD-mailing service.

Netflix set up shop here a year ago, shunning other lower-cost places in the United States and overseas, because it thought that Oregonians would present a friendlier voice to its customers. Then in July, Netflix took an unusual step for a Web-based company: it eliminated e-mail-based customer service inquiries. Now all questions, complaints and suggestions go to the Hillsboro call center, which is open 24 hours a day. The company’s toll-free number, previously buried on the Web site, is now prominently displayed.

Netflix is bucking several trends in customer service. Booz Allen Hamilton, a management consulting firm, and Duke University studied 600 companies last year and found a continued increase not just in outsourcing, but also offshoring, in which call centers are moved overseas.

“I don’t think there’s any trend to pull back,” said Matt Mani, a senior associate at Booz Allen. “This is a unique strategy for Netflix. There’s so much more competition, this is something they’ve done to get closer to the customer, because without that, there’s really no connection a customer has to Netflix.”

Netflix’s decision to greet anxious consumers with a human voice, not an e-mail, is also unusual in corporate customer service. “It’s very interesting and counter to everything anybody else is doing,” said Tom Adams, the president of Adams Media Research, a market research firm in Carmel, Calif. “Everyone else is making it almost impossible to find a human.”

In contrast, Blockbuster outsources a portion of its customer service, and when people do call, they are encouraged to use the Web site instead. Its call center is open only during business hours, said Shane Evangelist, senior vice president and general manager for Blockbuster Online, because the majority of customers prefer e-mail support, which is available 24 hours a day. “Our online customers are comfortable using e-mail to communicate,” he said.

The decision to invest heavily in telephone customer service was an expensive one for Netflix, but it may be one advantage that the company with the familiar red envelopes has over its rival with the blue ones, analysts say. “It’s vital in a world where they’re no longer growing their customer base," Mr. Adams said.

Indeed, for the first time in its eight-year existence, Netflix has found itself losing customers. It is not the quality of customer service that is driving them away, but rather the heightened competition from Blockbuster. Late last year, soon after Blockbuster introduced its Total Access program, which allows members to swap a movie they have rented online for an in-store movie, the nationwide chain began gaining on Netflix’s base of 6.7 million subscribers.

By the first quarter this year, after years of outstripping Blockbuster in subscriber growth, Netflix added 480,000 new subscribers while Blockbuster signed up 780,000 new members. And in the second quarter of this year, Netflix, which prides itself on customer loyalty, lost 55,000 customers. Blockbuster added 525,000, bringing its total to 3.6 million.

The Hillsboro operation, which occupies about 30,000 square feet of a low building in an office park, is intended to keep the red envelopes coming. Michael Osier, vice president for information technology operations and customer service, said he rejected cities like Phoenix, Salt Lake City and Las Vegas, which are known as call-center capitals, because of their high employee turnover rates. He settled on the greater Portland area because of the genial attitude on the part of most service workers.

“In hotels and coffee shops and the airport, it’s amazing how consistent people are in their politeness and empathy,” said Mr. Osier, who is based at Netflix headquarters in Los Gatos, Calif. “There’s an operational language in the industry that people are so jaded about — phrases like ‘due to high caller volume.’ We’re very consciously trying to counter that mentality.”

Netflix’s decision to eliminate the e-mail feature was made after a great deal of research, Mr. Osier said. He looked at two other companies with reputations for superb phone-based customer service, Southwest Airlines and American Express, and saw that customers preferred human interaction over e-mail messages. “My assessment was that a world-class e-mail program was still going to be consistently lower in quality and effectiveness than a phone program,” he said.

When Mr. Osier presented his findings in January to fellow executives, Reed Hastings, the Netflix chief executive, sent an enthusiastic message, BlackBerry to BlackBerry, from across the room. Mr. Hastings quickly became a supporter of the e-mail elimination project.

The company has tried to give the service representatives more discretion in deciding when to assuage disgruntled callers with bonus discs and account credits — and they are allowed to err on the side of generosity. More often than not, a month’s credit will be issued or a missing disc marked simply as lost, and the customer will not be charged. Netflix places no particular requirements on call duration, preferring that customer service representatives take the time they need to keep a customer happy and loyal.

Ms. Funk, 36, said some people call because they are lonely. Her lengthiest call of that kind lasted 35 minutes. Others need basic help with their computers or with the Internet. Some people do not own a computer and call regularly to have a call center employee rearrange the titles in their queue.

More often than Netflix might like these days, people call to cancel their subscriptions. One reason for emphasizing direct phone contact over e-mail messages is that on the phone, a Netflix employee has a fighting chance of persuading the customer to stay.

And it is up to the call center representatives to help retain customers. Autumn Daste, 30, who has worked at the call center for two months, managed to halt one potential defection recently when a call was routed to her from a polite but unhappy woman in New Jersey who had not received any movies recently.

Ms. Daste called up the member’s account information on her screen, including the type of service to which she subscribed, the frequency with which the member ordered movies, the number of months she had been a member, the number of times she had contacted Netflix in the past and a brief description of what those calls had been about.

Ms. Daste pointed out, ever so politely, that no movies had been sent to her because the woman’s queue was empty. “There’s nothing on your list that’s of interest to me,” said the caller, referring to the 80,000 movies Netflix carries.

Undeterred, Ms. Daste suggested they find a movie together. The woman mentioned one she had been wanting to see for a while, an Indian film titled “Fire.” Within seconds, Ms. Daste had it on her screen. She added it to the customer’s queue and told her she would be receiving it shortly. Customer pleased. Disaster averted.

Ms. Funk has been working at Netflix for eight months, a veteran by call center standards. (Mr. Osier said his goal was to keep people there for an average of two years, twice as long as the industry average.) At $12.50 an hour, she said, the pay is slightly higher than in her previous job, in retail sales.

One of the first questions customers ask, Ms. Funk said, is where she is, and they express their approval at the answer. “They like hearing it’s not being outsourced,” she said. Very few callers have asked about the disappearance of the e-mail option, she said.

Disappearance of discs, though, remains a common customer anxiety. Shortly before clocking out for the day recently, Ms. Funk took a call from woman who had just found a DVD she had reported lost a few weeks earlier. It was in her husband’s car. “All right, I need to get a new husband,” she told Ms. Funk, who gave a sympathetic chortle in reply.