8/23/2023 0 Comments Netflix pricing model![]() For Netflix, this could entail having add-ons to each of the tiers (e.g. If customers are not inclined to take the leap to the next tier, add-ons allow customers to choose upgrades on an ad hoc basis. ![]() current weekly content) or add revenue-generating activities (advertisements) to the basic package to motivate upselling. Netflix could add more features to the premium offering (i.e. Netflix’s price increase was undoubtedly a success however, did they leave money on the table? There are a handful of additional revenue opportunities that were overlooked: Subscription Tier DifferentiationĬurrently, the value proposition between the three tiers are minimal. Price increases allowed Netflix to increase domestic annual revenue by $800M or 44% of its domestic margin. The results of the increase became evident in the fourth quarter of 2016, where revenue growth hit a three-year high. Throughout implementation, from May 2014 to October 2016, the average Netflix account price increase was 17%, or $1.39 per user. Ii) Allowed Netflix to gauge and monitor reaction to their price increase I) One dollar seemed marginal to customers, meaning they would easily accept the change in price New: Instead of a one-time increase, Netflix opted for two smaller one dollar price increases, which had two positive effects: The decision also gave current customers time to become accustomed to the new tiered product offering before having to pay more. This was meant to create and sustain loyalty. Netflix used different phases for current and new subscriptionsĬurrent: Netflix introduced a “grandfathered” system where the current user’s price increase would be delayed. ![]() The majority of customers opted for the increase in price since the value offering matched their willingness to pay. This allowed self-driven customer segmentation, engaging with the customer to pick the offer they wanted. Netflix took a page from the airline industry and offered a “No Frills” tier. Netflix used two revenue management techniques to increase the price, introducing more subscription tiers and a phased approach: Increased Subscription Tiers The only card Netflix had to grow profitably was to increase its price, a risky move given the circumstances. To retain customers, Netflix had to invest in content. Quarter over quarter, Netflix’s subscription growth had plateaued. To grow profitability, Netflix had to cut costs or increase their top line. This represents a $20M decrease in annual revenue. They opted for the standard service instead of the average price per user began to quickly decrease to $7.74 from a peak of $7.81 shortly after the service was introduced. Consumers were not attracted to the premium service. In 2013, Netflix began offering a premium or family service for $11.99 ($4 more than their standard service). The problem is that content is expensive, and in past years, content costs were over 50% of Netflix’s streaming revenue. Content can retain customers and differentiate service. High Content CostsĬonsumers in the video streaming space want content-and lots of it. Hulu stock was rising and Amazon’s market share was skyrocketing as they began to offer differentiated services. Throughout 2013, though Netflix’s stock price history had been solid, the streaming service giant saw significant issues with their domestic consumption. There’s already plenty to choose from, but Netflix, one of the pioneers of this streaming services and developing digital content has set the stage for how streaming services approach pricing. These days, there are many options for streaming services, and they grow exponentially year over year, but you might be curious, which streaming service costs the most? Which costs the least?
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