One of my regular booze-addled correspondents recently forwarded along a message he’d got from customer service at Netflix. For those of you not in the know, Netflix offers flat-rate movie rentals through the mail. You pay your monthly subscription fee, and for that you can have x DVDs out at a time. x varies depending on how much you pay.

Anyway, my correspondent had recently had something go wrong, and he complained about it. Part of the company’s response was as follows:

We shipped 14 movies to you in April at approximately $1.42 each, that
includes postage and handling as well. I think you are getting a great
price. Compare that to a retail rental price, add in the gas to drive
there, and the lines, and the late fees. It is clear you are getting a
more than fair deal with Netflix.

Now, obviously my correspondent thinks he’s getting at least fair value for his money, or he would have cancelled his subscription. This is how a market works: if you don’t assign a higher value to a product or service than the amount of money being charged for that product or service, you keep the money, and the seller keeps his product or doesn’t perform his service. If you think that the product is more valuable than the money, you hand over the money. This works all the time, whether the product or service is a used car, a movie-subscription scheme, or some non-leg-breakage from the mafia.

But when you’re told what a great value you’re getting, I’ve found that one of two things are true. Either:

1. You are actually getting ripped off, or
2. You are witnessing seller’s remorse.

Examples of the first possibility abound, usually in cases where the buyer does not understand the actual value of the product or service being purchased. You often find people trying to sell cars for more than they’re actually worth by any reasonable measure: This one is a good example. It’s a 1982 Porsche 924 that someone recently tried to sell on eBay for $27,000. This particular 1987 Porsche 924 had a tiger-woman airbrushed onto the side of it. It truly must be seen to be believed.

The eBay listing goes on and on about how much money was spent on this car. The person who did this obviously assigned a great value to having a tiger-woman on the side of his car. The mistake, though, is in assuming that anyone else would assign any positive value at all to such a thing. With very few exceptions, though, any one 1982 Porsche 924 is worth very little more in the market than any other 1982 Porsche 924. Anyone who spent $27,000 on this thing would be getting ripped off.

The second case in which you’re assured what a great deal you’re getting is a case of seller’s remorse. Buyer’s remorse is a common term; it refers to a situation where a buyer’s sense of the value of something changes once he’s bought it. This may be due to psychological factors related to the ‘thrill of the hunt’, or it may be due to a fuller understanding of the value of a product or service, an understanding that comes only with posession or experience. Let’s say you really, really wanted a 1982 Porsche 924 with a tiger-woman on the side. You find one on eBay, and you buy it. After you get home, though, you discover that, despite your enthusiasm for tiger-women, you don’t much like being laughed at when you drive this thing, and you don’t like all the overtime you have to work in order to pay for it. You think you’d have been better off with the image of the tiger-woman in your mind, your Chevy Cavalier in your driveway, and your money in your pocket. That’s buyer’s remorse.

Most of the references I’ve found online related to “seller’s remorse” have to do with real estate: moving out of a house you’ve loved is difficult, even if you’re making money and moving to an empirically better house. But you can also have seller’s remorse for more mundane reasons, like realizing that you have not made a very good bargain: selling your tiger-woman Porsche for mere money migh qualify, if you’re sufficiently loopy.

It appears that Netflix feels that in this case they have not made a very good bargain. My correspondent doesn’t own a TV, so he sits at home, drinking his Schlitz out of the can and watching romantic comedy DVDs on his computer. He goes through one movie about every two days, but he pays Netflix the same amount as someone who only watches one movie a week.

This in no way means, though, that, as Netflix says, “It is clear [he is] getting a
more than fair deal with Netflix.” If the deal were more than fair to him, i.e. and less than fair to Netflix, Netflix wouldn’t enter into the deal. They’d cancel his subscription. Ergo he’s getting a perfectly fair deal. If Netflix does not make any profit on his subscription, that’s because subscriptions like his are part of the cost Netflix must pay in order to charge the same amount to people who take a week or longer to watch one movie, and who are very profitable for them. This latter group of people would be better off financially renting their movies at Blockbuster; but if the terms of the subscription were such that only the one-movie-a-week behavior was supported, very few people would see Netflix as having any value.

Having said all of this, I think it’s time for a new customer service rule:

Never tell a customer that you’re being ‘more than fair’ to him.

Advertising hyperbole aside, telling a customer what a great deal he’s getting is insulting to both you and the customer. By definition, in a market economy you’re selling something at a price equal to or greater than its value to you, and the customer is buying it at a price equal to or less than its value to him. Implying or directly stating that anything else is going on means that you’re either an inept businessman or a liar; in either case, you’re better off keeping this to yourself.

(Though it’s unrelated to this particular complaint about the company, someone has conducted an experiment to probe the black box of Netflix and determine something about how they jigger the effective value of subscriptions from month-to-month depending on viewing habits. Netflix’s actions — basically, if you rent a lot of movies, your access to high-demand DVDs, mostly new releases, is somewhat restricted — seem reasonable, but they are deliberately misleading about these actions and thus about the value of their service.

This is covered by customer service rule #13, “Don’t cheat your customers”. Even with the silent controls on availability of the most popular titles to the lowest-margin customers, Netflix provides good value for the money.)