Wednesday, July 13, 2011
Is Netflix courting disaster with its latest price hike?
This morning, my wife announced that Netflix has introduced a new pricing plan: $7.99 a month for Netflix Instant Streaming, $7.99 to receive discs in the mail but $15.98 for the combo.
The latter price represents a 60 percent hike over the previous fee of $9.99. I sighed at the prospect of paying more, but it is tough to give up on a service we use so much, and raising prices is an action I have proposed strong brands should consider in the past.
So, whilst I was resigned to paying the new combo price, not so the thousands of people seeking to leverage the power of Twitter and Facebook to decry the increase.On Twitter, “Dear Netflix” is a trending topic and the announcement on the Netflix Facebook page has garnered over 28,000 comments, many of which state, “goodbye.” It is going to be very interesting to see how many of these outraged customers actually do forego the service. Are they the vocal and price sensitive minority or are they real Netflix revenue generators?
This article in the LA Times suggests the price hike is prompted by cost pressures, and pressure from the Hollywood studios who believe the Netflix pricing undervalues their content.
It also notes that Netflix has imposed several price hikes in the past, but the subscriber base increased by 9.63 million in the last year (no doubt the result of Netflix’s aggressive online advertising that seems to pop-up with free offers all over the net).
So how strong might the consumer backlash be to this price hike? A quick look at last year’s BrandZ data suggests Netflix was well positioned for further growth. Just over half the U.S. survey participants (all online) had active familiarity with the service, indicating plenty of room to grow simply from expanding presence alone. Price did not seem to be a major barrier to trial or benefit to existing users, and many people appear to have strong, positive attitudes toward the service. Of its users, 61 percent were likely to recommend the service last year, which is relatively high compared to most brands.
One thing I did note is that over the last five years, Netflix has tended to end up in the “Poor Value” quadrant based on the Millward Brown Value-D ranking. This means the price perceptions of Netflix are relatively high compared to how desirable people find the service. But my question would be, what are the alternatives to Netflix? Blockbuster is well-known but requires people to get to the store. Redbox is not well-known and not much more easily available than Blockbuster. Hulu is great, but does it have the same range of content? Apparently I will soon be able to watch Doctor Who on Facebook, but that is just one program, no matter how long running.
So what do you think? A hike too far or one most people will be willing to pay? Please let me know.
This entry was posted on Wednesday, July 13, 2011
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