3 Pricing Roll-Out Tactics to Learn From Netflix

April 25, 2014

Leveraging Price Change to Demonstrate Loyalty – A Netflix Case Study If you follow my blog, you probably know that I follow Netflix and love to extract B2B lessons from their strategic moves. In the past, I’ve covered:

This week, I’ll focus on what startups in the B2B software markets can learn from Netflix’s latest pricing changes.

3 Pricing Roll-Out Tactics to Learn from Netflix

Earlier this week, Netflix announced it would once again alter its pricing model. This time around, Netflix is going about the price change in a much more strategic manner. What can startups learn from the move? Here are three tactics startups should consider as they roll-out a new pricing model:

  1. Notify the Market in Advance: Taking a page out of Amazon’s recent Prime price change, Netflix notified the market in advance of its price change. In your own business, it’s important to notify the market weeks or months in advance to ensure your customers are not caught off-guard by a sudden price change.
  2. Grandfathering Pricing Can Keep Customers Loyal: Netflix announced it will grandfather pricing for current customers for an unspecified period of time. Using the tactic in your own roll-out shows customers you appreciate them by limiting the impact of pricing changes.
  3. Show Customers the Value of Change: Netflix also informed customers that the new revenue would enable them to broaden their selection. Make sure your customers know the increase isn’t going towards an empty cause. If you show customers how a pricing change can actually benefit them, they will much more receptive.

4 Additional Tactics to Keep in Mind

Reed Hastings and his team at Netflix have has a history of struggling with pricing strategy roll-outs (just think Qwikster – one of the biggest pricing debacles in years). And while this roll-out has been better so far, Netflix is still early in the process. Hastings and his team should also consider the following factors as they complete the roll-out of the pricing strategy to ensure its success:

  • Price changes can work, but you only get one chance to get it right. Pricing adjustment often confuse and frustrate customers. Pre-announcing plans for a price change can be a great way of gauging customer reaction.  Another option is to test rolling it out with a small sample of customers. This is what they tried out when they tested out device limitation changes last year.
  • Publish the plans for the re-investment of the additional revenue from the price change makes the benefits real. Saying it is one thing. Actually committing to it is a whole other thing. This will let the customers know exactly where they can see their extra money going.
  • Maintain a simple pricing structure. Pricing models with too many options lead to customer indecision. Varying price by just one or two factors is typically the best bet.  Netflix already has price offerings varying on service type and number of devices, so adding other components may overly complicate the pricing.
  • Provide a pricing discount for annual contracts can make Netflix’s services more accessible to new members after a price increase. Doing so would also help remove any issues the company has with single show subscribers who sign-up to see new releases and then unsubscribe until the next season is released. Netflix would need to be careful that doing so does not overly complicate the options. However, the sign-up process can be made easier with a simplified sign-up process.

The Bottom Line

A major pricing error can spell out the end for your business. Make sure to invest the time into figuring out how to do it right –  One way is studying the market effects roll-outs by big players in the market and to avoid repeating their mistakes. Netflix offers a great example to learn from, but there are many others that you can learn from as well.
Do you think that Netflix’s price change strategy was successful from a business standpoint? What is your reaction as a Netflix current or future customer? Share below!

Marketing Manager, Pricing Strategy

<strong>Brandon Hickie</strong> is Marketing Manager, Pricing Strategy at <a href="https://www.linkedin.com/">LinkedIn</a>. He previously worked at OpenView as Marketing Insights Manager. Prior to OpenView Brandon was an Associate in the competition practice at Charles River Associates where he focused on merger strategy, merger regulatory review, and antitrust litigation.