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Pricing Strategies: Netflix
Danielle Brawnon 10 October 2012
Transcript of Pricing Strategies: Netflix
$9.99 per month The Original Strategy Netflix announced a 60% price hike in the services
DVD-by-mail and streaming services would be offered separately at $7.99 per service
Many customers viewed the announcement as poorly worded and confusing
The post stated:
"Second, we are separating unlimited DVDs by mail and unlimited streaming into separate plans to better reflect the costs of each and to give our members a choice: a streaming only plan, a DVD only plan or the option to subscribe to both. With this change, we will no longer offer a plan that includes both unlimited streaming and DVDs by mail." July, 2011 Customers were outraged resulting in critcisms across social media platforms The Response Bad to Worse: Starz announced it would not renew its agreement with Netflix
Starz owned the rights of about 2,500 Disney and Sony Pictures movies
This resulted in more customer complaints that they were paying more for less Introduction of Qwikster In September Hastings prepared to unveil the new company that would be responsible for the DVD-by-mail portion of the business.
Hastings turned down a professional film crew and shot a confusing video in the courtyard of the Company's headquarters. It was released to YouTube that night. http://www.hulu.com/watch/284938 More Complaints Customers would have to visit 2 different sites
View as heaping inconvience on top of the price hike
Hastings may have had right idea aniticpating switch to video streaming, but wrong approach to implementation
Quikster plans were abandoned in October Misjudgement of customers
Lack of careful planning prior to pricing changes
Made matters worse by splitting the business instead of catering to angry customers (Ex. Apple)
Failed to focus on value the price increase would bring
Failed to recognize the impact social media has on strategic changes Netflix Pricing Mistakes The future pricing strategy for Netflix Next Challenge Many believe that the "unlimited" streaming package will pose problems for Netflix in the future due to:
Increased costs to content providers
Difficulty in obtaining new premium content According to pricing expert, Rafi Mohammad, we will see Netflix adopt one of the following pricing strategies in the future: Digital Pricing Strategies Unlimited catalog content plus pay-per-view for premium content
Unlimited tiers: Good (catalog – low price), Better (catalog plus – higher price), Best (all catalog plus premium content – highest price).
Cell phone-like pricing packages. Customers can choose from a range of monthly packages containing a set number of catalog and premium content views. What do you think? http://www.cnbc.com/id/44730802/Rafi_Mohammed_Netflix_One_of_the_Biggest_Pricing_Blunders_in_Business_History
http://news.cnet.com/8301-1023_3-57468798-93/netflixs-lost-year-the-inside-story-of-the-price-hike-train-wreck/ Netflix lost approximately 1 million subscribers
The stock price plummeted and has not recovered
The stock price once peaked at $305 prior to the changes and hovers around $65 today
The initial price hike had a negative effect on the decisions that followed and made everything look worse as a whole Results