Archive for July, 2011

A Pricing Snafu at Netflix

July 14, 2011

Netflix’s new pricing plan is not going over particularly well with customers.

Yesterday the company announced that it was separating its DVD and streaming services and increasing the cost of the combined offering from about $10 per month to about $16 per month.

While Netflix pointed out that the price of a DVD-only plan is actually decreasing, consumers seem to be focusing on the price increase of the combined plan.

So far the new pricing plan isn’t proving to be too popular; Netflix is getting a rather dramatic backlash from consumers. In the last 24 hours, 58,464 people have posted comments on the company’s Facebook site, most protesting the move. As one person wrote: “This increase is ridiculous. I will cancel my service at the end of the month. I refuse to pay more!”

There is a lesson here: be careful when pricing new products. Netflix introduced streaming as an add-on to its DVD deals. There was logic to this move at the time; streaming was unproven, with a limited number of choices. But it taught consumers to think of the two products as a package. Trying to reverse this is a huge challenge.

It is much easier to reduce prices than it is to increase them. Netflix may have dramatically underpriced streaming when it first introduced the product, creating the problem it faces today.


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