Netflix is in hot water. Why? Customer sentiment was ignored as a component of the bottom line. Netflix was, and always has been an online retail darling. Just last year Fortune magazine featured CEO Reed Hastings on its cover as “Businessperson of the Year.”

Netflix has long been recognized for its innovation in the video rental market – delivering DVDs in its signature red envelopes to households across the nation. All this changed over the past summer, when Hastings decided to launch a new online streaming service, splitting Netflix into two companies: Netflix and Quickster.

The launch of Quickster was representative of Netflix’s foray into the world of streaming digital content. With the change, Netflix’s original DVD delivery service would now be known as Quickster and Netflix would become the exclusive brand name for the company’s streaming service.

As a result, the controversial decision was made to charge customers $10 per month for the service. Hastings’ move makes sense… in one way: revenues. For the first quarter, Netflix revenue rose 49 percent to $822 million. In other ways, the move has proved disastrous, and Netflix’s plummeting stock prices reflect it. The New York Times reports that today Netflix has 800,000 fewer subscribers in the United States than it had last quarter, its first decline in years, and its stock lost more than 25 percent of its value in in after-hours trading.

Streaming digital content is the future, but Hastings’ move turned its nose at how it would affect Netflix’s customers from an emotional perspective. According to the New York Times article, “the company underestimated the unquantifiable emotions of subscribers who still want those little red envelopes, even if they forget to ever watch the DVDs inside.”

Hastings made an inside-out decision – a classic businessman’s schoolboy error – albeit a common one. The Netflix case teaches us that you need to be concerned with the real drivers of the customer experience; understanding them is the key to success. Misunderstanding or ignoring them is playing with fire.

My assumption is that one of the reasons Hastings ignored the writing on the wall is because the results from focus groups and personal feedback seemed arbitrary, irrelevant and “touchy-feely” to him. Hastings is an analytical leader by most accounts, and that is the culture he nurtured at Netflix. The company’s strength – and weakness – in this situation is its highly analytical culture. One way to frame this situation is to ask, “How would Netflix value emotions as part of the customer experience in its bottom line?”

The most powerful aspect of Beyond Philosophy’s Emotional Signature technique is that it permits companies like Netflix to quantify their emotional engagement with customer experience using a statistically robust method. The beauty of Emotional Signature for analytical types like Hastings is that it eases the buy-in process of customer experience initiatives, providing a basis for meaningful dialogue about how customer experience influences ROI.

Netflix has learned about the power of emotional engagement with the customer the hard way. Here are two options that will help you avoid the trap in which Netflix finds itself:

  • At the simplest level, run some form of focus groups and pay attention to what you hear.
  • If you are heavily analytical, consider a more robust and sophisticated approach like Emotional Signature to model your customer experience.

Regardless of whether you do one or both of these, nothing is more important than paying attention to the results.