Question

NetFlix offers viewers access to stream movies and television shows through its subscription-based service. When it first offered a standard standalone streaming package in 2011, a large share of consumers were delighted that for $7.99 per month, they could receive all the content NetFlix has to offer. In 2014, NetFlix decided to raise the price of the standard plan to $9.99 per month. In 2017, the price again increased to $10.99 per month. Despite these price increases, NetFlix remains popular.

1) Consider the introduction of NetFlix’s standard streaming package in 2011 to be a new product. Explain in detail, which new product pricing strategy NetFlix adopted and the reasons for its success.

Netflix currently offers three streaming plans. With the Basic streaming plan, consumers can watch on 1 screen at a time in Standard Definition for $8.99 per month. With the Standard streaming plan, viewers can watch on 2 screens at a time and have the option of HD available for $10.99 per month. With the Premium streaming plan, viewers can watch on 4 screens at a time and have the option of HD and Ultra HD available for $13.99 per month. Despite the price differences in these plans, the actual product (unlimited TV shows and movies) is the same for everyone.

2) Which segmented pricing strategy (could be more than one) do NetFlix’s three streaming plans represent? Explain in detail.

3) Explain why segmented pricing is an effective strategy for NetFlix.

4) Do you think NetFlix should adopt dynamic pricing and charge every consumer differently based on how many minutes of content they watch every month? Why or why not?

Answer 1

1) Consider the introduction of NetFlix’s standard streaming package in 2011 to be a new product. Explain in detail, which new product pricing strategy NetFlix adopted and the reasons for its success.

Netflix used Market Penetration strategy- the Price is set low for a New Product . This helps in greater and quicker reach in Order to capture the market

Reason for success

• Market is Highly Price-Sensitive and has huge opportunities for a Low Price Product
• Economies of scale- Production/ Distribution Costs Fall with increase in Sales Volume .
• Low price helped to fight with Competition
• Faster penetration also helped in people experiencing the product

2) Which segmented pricing strategy (could be more than one) do NetFlix’s three streaming plans represent? Explain in detail.

Segmented Pricing is about Selling Products at Different Prices Though Cost remains the same for all. Segments can be based on Customer, Product Form, and geography

Here Netflix is using segmentation based on product form- number of screens and picture definition -standard definition, HD and ultra HD

3) Explain why segmented pricing is an effective strategy for NetFlix.

The costs remain almost the same for all. But Netflix can charge higher prices for certain segments. This helps to increase revenue, while also retaining standard customers who want a low price

4) Do you think NetFlix should adopt dynamic pricing and charge every consumer differently based on how many minutes of content they watch every month? Why or why not?

Dynamic pricing is a strategy where price is every flexible and keeps changing frequently according to factors like costs, market demand, market usage etc. this used in airlines, e-commerce. Dynamic pricing may help to reap some maximum benefits

But it also has its disadvantages.-

• Customer will try to maximize utility and save value. They may not see much content to save data and money. Netflix also depends on advertising. This reduced and discriminatory usage will affect advertising revenue
• Consumers will be unhappy because they need to check frequently how much content and in turn data they have consumed. This increases customer dissatisfaction and reduces peace of mind
• Dynamic pricing is good when the costs also vary frequently. But in Netflix case, the cost over a period does not vary quite frequently y

So dynamic pricing - based on how many minutes of content they watch, is not good strategy, it will just increase customer dissatisfaction