netlix price change

what

Netflixshould have done

when changing itsprices

Tatyana Belousov Shaun Keenan

Sasha Safonova Sapan Shah

Business model & past pricing

Competitors

New pricing

Our alternative

Shaun

Sapan

Sasha

Tatyana

World's leading internet subscription service for enjoying TV shows and

movies

Disadvantages of brick and mortar stores

Netflix’s core advantages

no late fees & a wide

available selection

Focused on customer experience to drive additional growth:

More content

Word-of-mouth marketing

Netflix’s revenue comes from subscription fees.

It’s that high because of price – not quality of service.

Customer retention is important, yet its churn rate is 6%

Ways to subscribe

85% of consumers paid for

only streaming or a 1-2 DVD plan in 2010

Streaming… DVDs by mail……or both.

Old prices

$10.99

unlimited streaming or DVDs

$7.99

streaming

from $8.99

to $47.99for others

Streaming

4 DVD: $21.99

New prices

DVD by mail

Old Netflix

$7.99

1 DVD: $7.992 DVD: $11.99 3 DVD:

$15.99

No Discount for having both plans :(

to remain price aggressive without sacrificing quality

to license more streaming contentto create a DVD rental division they can be proud of

…and to shift focus to streaming

Why the split:

Reaction to Pricing Change

Huge investor backlash

Stars would not renew its contract

with Netflix

Netflix lost one million more

subscribers than they had originally

expected to

Anger about dealing with 2

separate accounts

Netflix messed up!

Underestimated emotions of subscribers – unquantifiable!

Netflix messed up!

Misinterpreted the importance of options

Netflix messed up!

Overconfidence:Huge stock increase prior to announcement

Netflix messed up!

Did not utilize focus groups

Netflix messed up!

Blamed bad reaction on negative movement of the country- Occupy and the Tea Party

Individual show episodes

$1.99Season bundles

starting

at$32.99Less popular

films

FREE

Unlimited streaming

$79/year

$1/day $1.20/day

Less convenient than Netflix

Changed prices without a large

backlash.

What should Netflix have

done?Despite their clear gaffe, all is not lost

Maintain separate services

Price the bundle at

$12.99

Streaming$7.99

DVDs by mail$7.99

Mixed bundling

Th

ing

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diff

ere

ntConsumers who liked the full package would keep it

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ing

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ou

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nt

Consumers who only use one service would only pay for that one. Perceived discount!

Th

ing

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ou

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Netflix would reach a wider array of consumers, including those with lower WTP

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ing

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Profits would increase due to the increased price

Appendix

“We're done with that!” said

Mr. Hastings.

The price of the company's services

will not change.

Financi

al R

esu

lts

Earnings actually met expectations

Financi

al R

esu

lts

Revenue increase outweighed the subscriber decline

Financi

al R

esu

lts

Revenue

49%

Financi

al R

esu

lts

Both revenue and net income topped expectations