Netflix Pricing Analysis.pptx

Team 3

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-The Netflix team

Current plans

Overview of the company

Analysis of the case

Class discussion

Our recommendations

Agenda

Overview of the company

19971998

19992002

20032007

20082010

2011

Founded Flat fee introduced

1 million subscribers

Streaming hits devices

Qwikster

1st distribution center

IPO Streaming introduced

iPhone App

Analysis of the case

Problem Mistakes Learning

Problem

+ =

+ =

Unlimited Unlimited

Unlimited Unlimited

Problem

+ =

+ =

Unlimited Unlimited

Unlimited Unlimited

60% increase in

price!

Mistakes and learning

1. Define Price Window

Price window

Mistake: one account per product made it more complicated to the customerLost of contract with content provider

Learning: Don’t make it harder for the customer to do business with youWait until there is value to add to increase price

Mistakes and learning

2. Set initial price

Price window

Mistake: misjudged customers (didn’t now what they value and how were they using the service

Learning: must understand what customers value about the service

Mistakes and learning

3. Communicate prices to the market (fair perception)

Mistake: did not communicate value and no social media strategy

Learning: when and how to communicate matters: time it right!Social media must be in place

Class discussion

What do you think were the positive and negative differential values of Netflix in 2011?

Before: $10/monthAfter: $16/month

$80/year and bundled with

prime

Free but with ads

Recommendation

Price window

Negative: the buying process got more complicated by having to create 2 accounts (rising costs for the customer)

Positive: Better content than competitors and position in the market

Understand what are the positive and negative differential values

Class discussion

How would you have set the price? Would you have used existing products, create new ones or bundled differently?

+ =

+ =

Unlimited

Unlimited

Unlimited

Unlimited

Recommendation

Create a new service with an added value

Trade-off to make it profitable

$16

$10

C1C2

$X

$10

C1C2

• Maintain the $10 but for a “limited” service

• Calculate the trade-off to set new price• Offer a cheaper option analyzing

possible “dilution”

Analyze possible down-sell or “dilution”

• Thought there was only one segment and everyone had the same preferences

C3

What they did What they should’ve done

Class discussion

How would you have communicated the value to the market?

Recommendation

Complete communication through different channels

How much the service is worth today

VS

How much they are charging

Focus on the value that differentiates them from

competitors

VS

Company’s problems

Communicate better through social media and

multiple channels

VS

Not communicating anything

What did Amazon do?

•Increase of annual price after 9 years•Increase due raising of fuel and transportation cost

Added value:

•Number of items increase from 1 to over 20 millions•Unlimited access to over 40 000 movies and episodes•Selection over 500,000 books to borrow

Raised the Amazon Prime price from $79 $99

Thank you