Two Businesses Under One Roof

Learning objectives

1. Separate being right about the destination from managing customers through the change.
2. Understand loss aversion in customers facing a price increase or a split service.
3. Recognise overconfidence after a run of success.

Session plan

1. 0–5 min Read the situation, what is known and unknown, and the voices in the room. No discussion yet.
2. 5–13 min Each participant chooses an option on the case page, states a confidence and writes a one-line pre-mortem: if this choice fails, the most likely reason is…
3. 13–28 min Debate by option. Ask each group to draft the message customers would receive and to predict how they would react.
4. 28–33 min Reveal the outcome.
5. 33–50 min Discuss why the process is graded Weak even though the strategic direction proved right. What did the company know about how customers would react?
6. 50–60 min Transfer: participants identify a change their organisation is right about but may be pushing too fast.

The case page records each participant’s choice, confidence and pre-mortem in their own browser, and scores the confidence once the outcome is revealed. Nothing is sent anywhere, so it can be used in any classroom.

The key facts on one page

• The company raised prices and split its plans, then announced a separate brand for discs.
• It cancelled the separate brand within weeks after a fierce backlash.
• It lost about 800,000 disc subscribers in one quarter and much of its market value for a time.
• Its focus on streaming laid the foundation for its later growth.

Where discussions go wrong

• Concluding that the decision was right because streaming won. The direction was right; the process of moving customers was weak.
• Concluding it was wrong because of the backlash, without asking what the slower options would have cost.

The forces at work

• Being right too quickly: The strategic reading, that discs were declining and streaming was the future, was correct. The way the change was imposed on customers was the problem. Judging the whole decision by either part alone misses the lesson.
• Loss aversion in customers: A price increase of up to 60 per cent was felt as a loss by customers who valued the existing bundle. The company weighed the economics of the two businesses more than customers' experience of losing something.
• Exit and voice: Customers responded with loud voice, online and in the press, and with exit, cancelling in large numbers. Both signals arrived together, and the company reversed part of the change within weeks.
• Confidence after success: Years of successful bold moves can make a leadership team more confident about how customers will respond than the evidence supports. The chief executive later wrote that he had slid into arrogance based on past success.

The lesson to carry out of the room Being right about where the market is going does not entitle you to drag customers there on your schedule.

Pairs well with: The memo on the split, and the idea Loss Aversion and the Pull of the Status Quo.