Netflix CASE ANALYSIS – See Case 4-4 in Textbook for the case on Page 660
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Read Case 4-4 Netflix Continues to Change the Face of In-Home Movies Around the Globe in your text. Using the CASE FORMAT found under the RESOURCES tab structure a comprehensive analysis.
Learner Update:
Please note that there is an error in the textbook on page 661: involving the part of the Netflix case.
Question 5 should read as Table 15-2 (page 539), and NOT Table 15-3.
Assignment Outcomes
Summarize consumer behavior in relation to perception of the product.
Create a plan for successful implementation of a marketing strategy.
Netflix Pricing Strategies
Netflix Pricing Strategies
Introduction
The popularity of Netflix, which an online streaming service, has gradually increased in the past decade. Netflix has taken over home entertainment in many countries of the world. Netflix is among the pioneer firms to use the internet as the primary business model, although it began as a mail DVD order company (Poyar, 2020). Netflix uses the internet to share services and products with consumers globally. The change in the cost of the services and products offered by Netflix will affect consumer purchase trends. Adjusting marketing strategies will ensure the retention of existing consumers and expand to more markets.
Analysis of the Case Problem
Netflix encountered consumer dissatisfaction due to the change in the pricing strategies for various services and products (Mothersbaugh & Hawkins, 2016). Poyar (2020) explains that Netflix restructured the company’s pricing strategy and unbundled the streaming options, leading to an increase of the combined offering price from $10 to $16 a month in 2011. Increasing rates without considering the consumers’ concerns is a naïve strategy that enraged Netflix consumers. Many consumers reacted negatively (Mothersbaugh & Hawkins, 2016). As a result, Netflix lost 800,000 subscribers within one quarter. The CEO elaborated that the company failed to research various consumer groups before initiating the new plans.
Netflix has the capacity to increase its prices for various services, an action the company has undertaken in the past. The previous hikes incorporated by the firm resulted in several cancellations that affected the company performance (Mothersbaugh & Hawkins, 2016). Chanda (2019) suggests that the increase in prices was an expected strategy necessary for the company to meet its costs of content. Moreover, investors supported the decisions to increase rates.
Furthermore, the cutting down of prices before due to competitive companies is not the best approach for Netflix to undertake (Chanda, 2019). Although subscribers are attracted to such a move, the investors are likely not to support the action. The company misjudged their consumers and did not understand that most of the customers were willing to pay for services they rarely used in 2011 (Young Entrepreneur Council, 2011). The Netflix appeal at the time was renting a movie to most consumers, and the increase in prices was challenging to justify among the consumers. Most people did not view the increase to correspond with the value provided by the firm due to unclear communication. The company did not communicate with consumers and potential customers effectively.
Solutions
Netflix incorporates active coping to solve the issue of consumer dissatisfaction. The process included excising restraint to limit rash behaviors. The company should have added a customer enhancement element to the price increase strategy. Many users conduct a value assessment by making a comparison of the product features and the process before making a purchase. When there is an increase in the prices and the service lacks essential enhancements, its value depreciates.
As a result, the management can capitalize on the pricing situation in 2017 (Poyar, 2020). Netflix should have included the migration of the existing consumers to the new plans. By implementing the aforementioned marketing strategy, the company would be able to reduce the loss of subscribers. Moreover, the company could allow the existing customers to use the low price options for two years before their migration to the higher-priced plans (Poyar, 2020). Netflix realized the growth of subscribers after carefully rolling out the new strategy for price increase in 2017, which led to an increase in subscribers by over 2 million in the United States. Moreover, the company increased the global customer reach by 33%. Both existing and new consumers embraced the new change model. As a result, the revenues of the company increased by 35% (Poyar, 2020).
Chanda (2019) elaborates that consumers are pressuring Netflix to reduce subscription prices. Moreover, there is an increase in organizations offering similar services. As a result, the company should incorporate strategies to improve competitiveness. Communicating the changes of prices is critical. The main reason for the smooth adoption of pricing by the consumers in the 2017 marketing strategy was the timing element (Poyar, 2020). The company provided consumers with several choices and offered the existing customers enough time to plan for their migration to the new pricing strategies.
Justification
- Corporate decisions affect the stock price of a company. The case of Netflix proves that the changes in pricing can ensure the success or failure of a business. Therefore, investing the appropriate pricing rollout strategies could positively affect the perceptions of the consumers to an increase in prices. After the negative impact of the price changes at Netflix, the company made better strategies that had successful outcomes.
- The Value-based philosophy is measured by the amount of value that a company delivers to the consumers relative to the competition. Netflix uses data-based approaches to make crucial decisions. However, the choice of increasing prices in 2011 was a misstep. Key decision-makers that did not consider the emotions of numerous subscribers underestimated the reliance of the firm on consumer data. Nonetheless, the company rolled out a new pricing strategy based on active coping to enable the many existing customers to adjust to the new prices.
- In 2017, the strategy was attractive to new consumers since the firm added value to its current service offerings. While consumers expected consistency in the pricing without constant changes, the company incorporated a better strategy that would benefit both parties, the customers and the firm.
Summary
The power of the pricing strategy is based on customer satisfaction and the value of the service. Such decisions should be implemented after vast research on the market segments. Streaming has changed how consumers use home entertainment. Netflix began using the internet to share content with consumers as a way to increase its market reach. However, the company had to increase its prices to allow for the acquisition of more agreements with production studios globally. The management immediately hiked rates that caused a massive decline in the number of subscribers. However, the implementation of a consumer-centered approach for rolling out the price increase in recent years has enabled the firm to grow its consumers.
References
Chanda, N. (2019). Netflix: Three-Pronged Strategy to Outpace the Competition – Market Realist. Market Realist. Retrieved 25 February 2020, from https://articles2.marketrealist.com/2019/10/netflix-three-pronged-strategy-to-outpace-the-competition/#.
Mothersbaugh, D. L., & Hawkins, D. I. (2016). Consumer Behavior: Building Marketing Strategy. McGraw-Hill Education.
Poyar, K. (2020). Netflix Quietly Perfected Their Pricing. Here’s What You Can Learn. | OpenView. OpenView. Retrieved 25 February 2020, from https://openviewpartners.com/blog/netflix-pricing-strategy/#.XlT0_CgzbIV.
Young Entrepreneur Council. (2011). 5 Business Lessons From the Netflix Pricing Debacle. Forbes.com. Retrieved 25 February 2020, from https://www.forbes.com/sites/theyec/2011/12/28/5-business-lessons-from-the-netflix-pricing-debacle/#6cd48d2cd2a7.
