[semi OT] Victory for Voices Over Keystrokes

August 16, 2007
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.

Copyright 2007 The New York Times Company