How You Can Avoid Netflix's Pricing Disasterclass.

A lesson in what 'not' to do.

How You Can Avoid Netflix's Pricing Disasterclass.
Photo by Thibault Penin / Unsplash

Given its size, Netflix has one of the least impressive pricing structures on the planet.

Netflix Is Amazing, But It Had a Problem.

As of Q3 2021, Netflix had 214M memberships and drove around $7.5B in revenue – but they’re price capped. Their highest-tier is $19.99 – what happens when someone who loves the service wants to spend more with Netflix?

They can’t.

We'll return to how they solved this problem at the end of the piece.
Source: Netflix (USD)

Netflix Doesn't Have "Enough" Prices.

I don’t mean prices that aren’t high enough, although that’s part of it. I mean there are not enough economic pathways for their customers to take advantage of – they’ve capped their upside. If a customer wants to spend more with them, they are not able to. $240 per year is the maximum amount a user can spend.

For longtime readers – you'll also know I hate this setup because it makes them a commodity, like any other utility. Aside from Netflix Originals, there is no juice in what they offer versus the competition apart from brand power.

Compare Them To The Competition.

Peacock allows you to pay for premium events, pay-per-views, and sports packages. Apple TV and Prime Video let you pay a fee each month to add extra channels. Disney+ allows people to pay a premium to stream movies that are in the theatre early on their home screens. (I know this is the cable model all over again, but there’s a reason it was used.)

Imagine If Netflix Added An Extra Service For Hardcore Movie Lovers.

Let’s say it’s something modest like an extra $7.49/month to receive curated playlists from celebrities and directors. Or custom, behind-the-scenes content. Or early access to shows or movies, like Disney did during the pandemic.

That single service, if adopted by 10% of users, could generate $1.94B to their top-line. I’m not sure why they haven’t done it. Perhaps it’s a legal issue, perhaps they believe it’s anti-consumer, but as a friend said to me recently: Netflix is becoming Blockbuster. They’re a sitting duck.

This Is More Than a Monthly Price Increase.

Netflix became profitable when it finally brought its prices to a level that made sense. However, I'm not talking about tacking on a higher price – although they should do that to keep pace with inflation – I'm suggesting adding new revenue sources to diversify themselves and capture more of their customer's wallets.

If they don't, someone else will.

Look To Videogames For The Map.

Electronic Arts followed a similar strategy to the one I've laid out when they added their Ultimate Team mode to their sports videogames. In addition to the $60USD price tag for the yearly entry of the game, users could pay for packs of digital “cards” that they could use to build teams and compete against each other online.

Source: Rock, Paper, Shotgun.

It Transformed Their Business Overnight.

Now the revenue generated from the core game pales in comparison to the money generated from that additional service. Fans complain and call it a cash grab, yet millions of people spend billions of dollars on these transactions.

Source: The 10th Man.

Here's What We Can Learn From All This.

You Need More Prices. (a.ka. More Products)

That includes lower, and higher prices. You want a higher price frequency. You want wider pricing options. You don’t want to be pigeon-holed in a narrow band of prices that cap out at $20/user.

If the product doesn't exist, they can't buy it from you.

If the option doesn't exist, the customer can't support you. Getting as many products to market as possible is your objective. You don't need to drown your users with options, but you can flood their awareness with potential options that passively ask:

"Hey, do you love what we do? Here's more of it you can buy."

It’s Your Duty.

If you believe in your company and what you sell, every dollar you allow a consumer to spend somewhere else is a violation of your ethics. The competition will not treat them as fairly as you will, so why would you leave them to fend for themselves?

Become An Everything Store.

Amazon, Apple, and Wal-Mart are so huge because they are everything stores. They’re there for you in a litany of ways, and they’re engineering new ways every day. You need to be omnipresent – there’s no harm in this. If you were a greedy, unethical, criminal enterprise there’d be an issue, but you’re not. Your company wants to help as many people as you can – this is how you do it.

How Netflix Approached This Problem.

They opened up – a merchandise store for hardcore lovers of many popular franchises. I love the idea and because of the high-ticket size, I'm very excited for this to work out for Netflix.

But I can't help but think that introducing lower friction offers would make a splash to their bottom line without all the logistics of managing products and fulfillment. . Prime TV, Apple, EA, and Disney+ can collect that revenue with an instantaneous button press.

Why not both?

Image of the new Netflix shop.

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