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This past summer, high-riding Netflix announced an increase of 60 percent in the price of a combination of data streams and DVDs. Netflix subscribers were upset. Then, the company trumped that by announcing that, henceforth, DVDs and streaming would be handled by two different companies, requiring subscribers to use two different web sites.

The result was a net loss of 800,000 subscribers in the third quarter. Netflix stock was trading at close to $300 in mid-July. Today it's trading around $80.

This week, the New York Times has run two articles on the debacle. "Reed Hastings Knows He Messed Up" appeared on Sunday and "How Netflix Lost 800,000 Members, and Good Will" came out on Tuesday. Here are some things you can learn from the situation.

Metrics are good. Metrics are powerful. But metrics aren't everything.

The only actual customer that Reed Hastings seems to have talked to about his plan was a friend who told him it was a bad idea. Hastings discounted the warning because he thinks CEOs should discount what their friends say. He didn't need to take his friend's comment to heart, but it should have sparked a quest for information about how actual customers might actually react to the planned changes.

Instead of looking outside for that, Netflix looked inside its computers where data indicated that people were migrating to streaming faster than anticipated. They jumped from that to their "let's confuse them and let them eat DVDs" strategy. The company used focus groups, but only to test possible names for the new DVD spinoff. After all, the data had already "said" that splitting into two companies was a good idea.

Even if he chose not to listen to his friend, a little common sense would have come in handy. When you take things away from people, they get upset. Netflix chose to take away options while increasing complexity. You shouldn't need a lot of market research to tell you that's a bad idea.

Especially in tough economic times, a 60 percent increase in anything is a big hit. Mr. Hastings doesn't see that in emotional terms at all. Instead, according to the NY Times, "Twice in the interview, Mr. Hastings linked the hostility toward Netflix’s price change and proposed breakup to the angry mood of the country, even citing the Tea Party and the Occupy Wall Street movement by name."

So here's a news flash. The Tea Party and Occupy Wall Street movements by themselves would have had no impact on Netflix. What got people upset was what Netflix did. No other company that I'm aware of lost close to a million customers and three quarters of its capitalization recently, despite the mood of the country.

Boss's Bottom Lines

Data don't tell you anything, they just lie there quietly while you interpret them.

Data don't buy things. People buy things.

Additional Resource

Read Scott Eblin's post, "Three Leadership Lessons from the Netflix Slide."

Wally's Working Supervisor's Support Kit is a collection of information and tools to help working supervisors do a better job. It's based on what Wally's learned in over twenty years of supervisory skills training. Click here to check it out.