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How to Create and Develop Lasting Brand Value in the World Market
by Nigel Hollis
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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).

Netflix price hike

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.

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This entry was posted on Wednesday, July 13, 2011 and is filed under Brands. You can leave a response.

21 Responses

  1. Wednesday, July 13, 2011

    Jose

    Bad timing for Netflix to raise its prices. I believe they should have priced the service at around $20 years ago, when they first introduced the streaming content. Now they have everyone accustomed to how cheap the service is that nobody really gets its value. I'm sure Netflix did plenty of research to come to this decision, but I'm not sure if they included a Psychological variable in the model. Now that it isn't as cheap anymore, I'm sure the price-sensitive segment will forego one of the 2 services or cancel althogether. Other segments may cancel when they realize that most Netflix content is available On-Demand by most cable, satellite, and Fiber-Telco services. I personally believe Netflix is nothing more than an "add-on" to TV services, it is not the core Video source and will never be. I think this is the beginning of a decline for Netflix. Amazon Prime and Hulu need to take this opportunity to snatch up disgruntled Netflix users.
  2. Wednesday, July 13, 2011

    Nigel

    Interesting comment, Jose, because I have always believed that services like Netflix need to price higher to start with and then lower their price later. It's tough to do the opposite unless you really are a "must have" brand.
  3. Wednesday, July 13, 2011

    Heath

    My wife and I discussed this last night too. We had gotten the Blu-Ray plan before we got into streaming. However, now we like streaming so much (the convenience and immediacy) that we barely keep track of what's in our Blu-Ray que. So, we actually cut our total price to $7.99 a month just to get the streaming option. This might backfire on Netflix a bit if more people value the instant gratification of streaming.
  4. Wednesday, July 13, 2011

    Adam Coleman

    Having been with Netflix since July 2001 (our first DVD was Bridge on the River Kwai if you were wondering) I think they're missing a trick on loyalty. I don't see any reflection of this in their one size fits all pricing. They're good at bringing people in via free offers for a month, but don't deliver for those people like my wife and myself.



    My rate will go from $11.99 to $17.99 ... but there is not a lot of additional choice so competitive pressure is not the same (as you point out).



    From a long term brand image perspective they should be thinking more about how to market differently to loyalists, those on the fence for leaving, and those who they are courting as new users. I don't see their marketing reflecting these nuances and ultimately better targeting (and pricing) in this way might help them with the long game. Effectively agree with Jose - if they don't adjust their approaches they'll begin to decline in the US and will have to look Internationally for expansion (as they seem to be doing).


  5. Wednesday, July 13, 2011

    Nigel

    Thanks Heath and Adam, interesting how this has promoted so much discussion with spouses! Is Netflix movie watching the new quality time? If so maybe it is worth paying the premium.

  6. Wednesday, July 13, 2011

    Dan

    Price isn't an issue to me.  I simply switched to the combo plan with 2 DVDs at a time and streaming for the same price I was paying for 3 DVDs and streaming.  The lack of one DVD won't make a difference.

    The real issue is the lack of available titles for streaming.  Yesterday when they announced this, I went to the Netflix website and browsed the new releases.  Of the first 100 new releases that they list, only 7 of them were available for streaming.  At that rate, I will be a DVD subscriber for some time to come.

  7. Wednesday, July 13, 2011

    Drew

    I would think Netflix is trying to push more people to use the streaming option since it most likely cost them less money to provide this service.  By charging people a-la-carte for stream and physical discs it will force them to decide if the physical discs are really worth the extra money.  I would think most people who are tech savvy would choose the instant streaming option, but at the same time they won't necessarily alienate those who only view the physical discs.  My understanding of their previous business model was that those who were heavy physical disc users were given less priority in movie selection than either the streaming or lighter users since they were making the least money off of the heavy group.  This pricing strategy, in my opinion, seems to be targeting the goal of increasing the streaming group, thus reducing overall costs to the company.

    On a side note, I love Red Box--I reserve a movie via the mobile app and pick it up at the grocery store down the street.  Not the same as on-demand or streaming, but for $1 (compared to $5 for on-demand or an $8 subscription to Netflix) it is worth the half mile drive since I only get a few movies a month.


  8. Wednesday, July 13, 2011

    Nigel

    Thanks Dan and Drew, interesting juxtaposition of views.
    I agree with you, Dan, about the limitation of streaming, not enough recent titles to choose from.
    To your point Drew, if Netflix were trying to get people to stream more then a little carrot might offset the price stick. Some of us have to drive a little more than half a mile to the nearest grocery store!

  9. Wednesday, July 13, 2011

    Tony

    Nigel - let me add to the chorus - Good Bye Netflix!  Pay Per View was already my first place to look for evening entertainment even when I had Netflix streaming, + my cable bills is already +200/month!  Watch Pay Per View continue to explode - it's just too easy, too convenient, and a good value for family entertainment.  For all the talk of "Cloud", Redbox, Hulu, Vudo, Netflix, etc.....consumers gravitate to quality (availability of new release selection), and convenience everytime - that's why Pay Per View has already won this fight.
  10. Thursday, July 14, 2011

    Vafer

    I'm sure the team at Netflix did the math.  I think they prefer to push folks to streaming.  Margins better, less labor intensive, etc.   And if you gotta have a DVD, pony up.  We'll prob do both until the streaming gets more content (eventually it will).



    If you're complaining about your $200 cable bill, I think you're barking up the wrong tree, don't you think?  Personally, I"m off the grid, happy w/ web content, netflix, Apple movies and the free stuff on the air.  I just need to find the right DVR to control the last one - need to look into MythTV.


  11. Friday, July 15, 2011

    Nigel

    At last, someone who wants to say good bye! Tony, yes, pay per view is a serious contender for many. However, I am in Vafer's camp. $200 a month seems an outrageous amount of money when you have been off the grid for years. 
  12. Thursday, July 21, 2011

    Sharayah

    Like Dan, we are just switching from 3 DVDs to 2 DVDs and paying the same amount, so it's not a huge deal to me. Personally I don't understand why Blockbuster doesn't start up a mail service like Netflix, they already are competing with Redbox by having kiosks at gas stations and other places, and the physical video store isn't going to last much longer.
  13. Tuesday, July 26, 2011

    Nigel

    Looks like Netflix does expect to lose subscribers as a result of the price hike: Netflix Falls on Subscription Warning 

    Amusing that investors appear to equate subscribers with profit. Perhaps they are over-influenced by the current rash of internet IPOs where more users is better?

  14. Wednesday, December 14, 2011

    Greg

    I think it really comes down to how much new video content you care to watch in a month. For me, I rather spend my time streaming video via the internet. Although, the convenience of just having the option to turn on your tv on at anytime and watch the latest film is quite comforting. I really can't see current subscribers giving up the service unless the content really starts to disappoint.
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