Impact Pricing Blog

I Finally Dropped Netflix: A Pricing Introspective

It’s true.  After loyally subscribing since the era of DVD’s, I finally unsubscribed.  In this blog, I’ll first tell you what went through my mind, and then I’ll analyze it as a pricing professional.  You may want to refer to this recent article in “The Street” to read about their latest price increase.

We received a notice several months ago that Netflix was raising prices again because of new programming investments.  I laughed off the reasoning because pricing has nothing to do with costs, but they needed an excuse.

You should know we (my wife and I) have Dish Networks in our home, so between Dish and Netflix there is too much TV we could watch, and I don’t watch that much TV anyway. Between the two sources, we can easily find something to watch.

September of last year, about 6 months ago, I started seeing ads for Jack Ryan on Amazon Prime TV. I’ve been a huge fan of Vince Flynn books and wanted to try it. We already pay for Amazon Prime (for the free shipping) so all I had to do was go through the learning curve and effort to get Amazon Prime on my TV. (I used an Apple TV. It is not available on the Dish set-top box like Netflix is.)

Jack Ryan was pretty good. Then we watched The Marvelous Miss Maisel, which is a marvelous show. Then I started watching The Man in the High Castle. Wow, Amazon Prime TV is pretty good.

Then, last week I got a reminder that my rate was going up on May 1st, and this time they barely offered an excuse. It was more like “we deserve it.”  I started thinking, only so many TV watching hours in a week.  We now use Dish, Netflix and Prime.  Do we really need Netflix?  I loved House of Cards on Netflix, but other Netflix series that we tried just didn’t match our taste.  It’s easier to find something we like on Prime.  So, I canceled Netflix effective May 1.

Everything above is absolutely true (I may have messed up some timing but not the events or the thinking.) Now let’s put on a pricing hat and analyze what Mark, this one buyer, did. (Yes, I’m going to talk about myself in the 3rd person.)

First, if Netflix did not raise their prices, Mark would not have considered dropping them.  Raising prices ALWAYS causes subscribers to rethink their decision.  It doesn’t mean they will unsubscribe, but some will.  If you want to minimize churn, don’t raise prices on your customers.

Second, when Netflix shifted from DVD to Streaming, it was pretty much the only game in town.  Mark saw them as a “Will I” product and didn’t consider any other streaming services. For Mark, you could think of Netflix as an option on top of the Dish Network subscription.  Since then, many competitors in the streaming space have entered, but momentum, satisfaction, and lack of time to try something new kept Mark paying and watching Netflix.  One content product, Jack Ryan, was enough impetus to get Mark to try it.  Once he tried Prime, the decision went from Will I use Netflix to Which one should I use?  Buyers are much more price sensitive in the Which one decision.  Amazon Prime TV was effectively “free” since he was already paying for it, just not using it.

Third, in a subscription business, usage is crucial!  People have limited money and limited time.  If they invest their time in your product, they are more likely to invest or continue investing their money in you as well.  If they don’t use it, they don’t value it and are much less likely to pay for it.  Your goal, besides getting people to buy your subscription, is to make sure they use it … a lot.  If they aren’t, why not?  Netflix does this well by looking at the most popular shows and creating more like them.  Of course, they have to pick a segment and it appears Mark was not the targeted segment.

Finally, and not part of the original story, a while ago I was thinking about dropping Amazon Prime when it expired because I didn’t like their pantry program and had to think about which products they offer free shipping on or not. Now, I definitely won’t cancel Prime.  Amazon Prime costs less than Netflix (at least for us) and we get free shipping on most items.  The lesson here is to keep adding value to your subscribers.  They are less likely to drop.  (Although I’m not sure how free shipping and video streaming go together.)

Hopefully, this introspection was helpful.  Not everybody is like me and Netflix will probably do exceptionally well with this price increase.  The market is already rewarding them handsomely with a 37% increase in stock price so far this year.  Regardless, it is fascinating to think about your own decisions and then put them against your pricing frameworks.  Every market is made up of a bunch of individuals making decisions.  How well do you understand those decisions?
Tags: subscription pricing

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