Up until recently, I was an avid proponent of Netflix. I mean who doesn’t love having a DVD delivered to their doorstep or just turning on a gaming device to stream your favorite TV show? However, in just a few short months, the company has systematically alienated nearly one million customers with an ill-calculated price hike. This begs the question, how could such a profitable company make such a huge misstep?

While there I cannot argue the necessity of a price hike from a business standpoint, as someone in the advertising industry, I can say the way in which they communicated this to customers is what led to their current state.

The Netflix debacle is a great lesson of the importance of knowing your customer. Whether you are a hugely profitable company such as Netflix, or a local mom and pop shop—the old adage “the customer is always right” comes into play. If your customer isn’t happy, you will lose business and at the end of the day money too. The trouble these days is that angry customers have a much larger, public platform in which to voice their frustrations. Between Facebook, Twitter, and blogs—angry customers have plenty of outlets to trash companies like Netflix on.

With their once valuable stock plummeting, Netflix CEO Reed Hastings attempted to repair the damage, by sending out an “I’m Sorry” letter. In the letter Hastings’ does not offer an apology for the price hike, but rather for not communicating the changes to customers properly. He went on to offer a convoluted explanation about rebranding their DVD services under the name Qwikster as a way to make up for customer dissatisfaction. Needless to say, the letter only served to further anger their current and former customer base. First of all, why rebrand an already well-known brand? I think it is safe to say that most people know that Netflix offers both DVD rentals and streaming services, so rebranding the service at this juncture is just confusing. On top of that, one of the great things about Netflix was that you could receive both of their services through one website, so why complicate things by separating them into two?

Luckily, Netflix realized sooner rather than later that splitting their services up is not a smart decision and as of last week they have halted plans to do so at this time. By putting their rebranding plans on hold, it seems as if Netflix may finally be taking a step in the right direction by listening to what their customers are saying.

So to Netflix and all of those businesses out there let me offer a couple of tips.

1. Research…Research…Research!!
I think that if Netflix would have done more research into what customers liked about the service, they would have discovered it was price and convenience.

2. Make All Communications to your Customers Clear
Had Netflix communicated clearly why the price hike was necessary from the get-go, or if the CEO had clearly stated “We’re sorry we had to raise prices and we understand why you’re mad,” rather misidentifying the issue—customers may have been a little more understanding about the entire situation.

3. Watch Your Reputation Online
Reputation is everything in business and with the advent of social media, word of mouth (or rather type?) is all the more powerful in swaying public perception. By having a social media presence, you can help to quell some of this by putting your own message out there and monitoring what others are saying about you.