When Netflix Gives a MasterClass on Raising Prices

netflix marketing lessons

Did you see the Netflix price change, announced yesterday? What an interesting business entity to consider.

 

netflix marketing lessons

The Details:

  • Netflix total subscribers: 182.8M
  • Basic plan: unchanged
  • Standard: up $1 (to ($13.99/mo)
  • Premium: up $2 (to $17.99/mo)

 

Three Observations:

Observation #1: Netflix once again prints money with a single email. Consider having a business model where you add, let’s say an average of $0.80 rate hike per subscription.

That is $146,240,000 in additional revenue every month.

That is $1,754,880,000 (that’s Billion) in additional revenue per year… from a single rate hike. From a single email. Un-freaking-believable.

 

Observation #2: Why didn’t Netflix raise rates on the lowest? Curious, right?  It’s because they are brilliant. Think about it, anyone paying the basic plan has clearly revealed that they value cash so much, to be unwilling to pay even $4 more dollars per month (before the hike) for additional benefits in the Standard Plan. $4 isn’t much, a cup of coffee, so those subscribers are entrenched in their comfort levels for whatever reason. It could be economic (they literally can’t afford more), it could be budgetary (they absolutely refuse to spend more, no matter the benefit), but whatever the reason they have already indicated to Netflix that they will not budge.

Because of this, Netflix risks alienating this lower tier by implementing a $1 hike across all plans. What do they do? They tax the “rich”, by pulling it out of the Premium plan. The Premium plan participants are on the other end of the spectrum in what they have communicated to Netflix (to be clear, this doesn’t mean they are necessarily wealthy compared to the Basic plan… we are talking about money paid to Netflix here, not average income). They have told Netflix that they value the additional services enough to pay more. I would wager to guess (along with Netflix money-crunchers) that charging the Premium tier $2 more without raising the Basic Tier in any way will likely lose less overall subscribers.

 

Observation #3: Netflix has also just given us all a masterclass on pricing structure. In thinking through the ideal pricing structure, a business understands that pricing correctly will maximize the amount of revenue received. If Netflix only had one price, as in the good ole days, they would still be fabulously cash rich… but not quite as cash rich as they can be. With the pricing structure they have created, there is a place for each of the three groups of people who may purchase, but with an intentional shove into the Premium Tier.

Note the pricing structure below, as it stands October 30, 2020:

netflix pricing structure for marketing

 

While we may think at first glance that Netflix’s objective is to push people into the middle tier (we’ve been trained in the past to like to choose the “normal” pricing), I would suggest Netflix is trying to get most to shift to the Premium plan. Look at the pricing hike from Basic to Standard to Premium. It now costs $5 more per month to jump into Standard, but ONLY $2 more to hop into Premium. If a family already is on the Standard, they will run out of screens pretty darn fast. Even a couple with two phones, two tablets, and two computers could run out of 2 simultaneous Netflix screens! But I mean, for only $2 more dollars you get your screens AND Ultra HD. Netflix wants it to be a no-brainer, so they push everyone to the Premium plan (which BTW now costs $2 more per month).

That’s a brilliant price structure, intended to keep working people up the line until they finally give in emotionally and accept the higher price.

Netflix could easily give a Masterclass in marketing, pricing, and business management but unfortunately, they’re too busy making gobs of money to bother.