The Netflix Conundrum - Raising Prices Without Irking Your Members

Earlier this week, Netflix announced a change in its current DVD/Streaming system. Web Pro News sums up the change quite succinctly:

Moving forward, Netflix users will have the option of a $7.99 unlimited streaming service. instead of paying $2 extra for the one-at-a-time unlimited DVD service, users will now have to pay another $7.99 a month for that. This basically means that the $9.99 service was just increased about 60% to $15.98 a month.

Netflix's service (in the US, anyway - Canada is a whole different egg) has always focused on DVD rental as its core business model. Streaming was seen as an added bonus, but as online video has begun to usurp more and more of Netflix's resources, it made sense shift their priorities there.

Some people are upset about the rate change - which comes on the heels of a recent price hike less than a year ago - but for a company that has changed its pricing structure so little in a world where the cost of movie tickets rise about 5% annually, I'd reckon that there's little to be upset about.

When introducing a change of rate or policy, there will always be whiners. Netflix is a great example of how to do this well. Instead of just raising prices, Netflix was upfront and answered two of the biggest questions that consumers would undoubtedly have.

  • When. Instead of forcing the changes immediately to existing customers, Netflix placed a reasonable start date for the policy change. September 1, just over a month and a half from the announcement. This gives members an opportunity to adjust to the change and decide if they want to continue.
  • Why. By publicly acknowledging the direction that Netflix is going in, and being transparent in its dealings. We all know it costs money to get distribution deals, and Netflix hasn't made it a secret that they routinely face opposition from the big studios. This transparency makes it much easier to understand a Netflix rate change - the consumer knows that the product costs money and that price hikes are evaluated very carefully.

No consumer likes higher prices. However, if the lines of communication are open, honest and transparent between the business and its member, it makes a hard pill that much easier to swallow.


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