Small Business Marketing Techniques For Profits–Netflix Customers See Red

Posted by on July 13, 2011 3:08 pm
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Categories: C1A - Marketing Marketing During A Recession

There are tons of ways to market a business for increased profits.  The one I’m going to focus on is raising price.  It’s often times a method business owners cringe at but when you think about it, it’s one of the fastest ways to increase your bottom line profits.

Small Business Marketing Techniques That Work The Netflix Way

So let’s dig into raising price.  One way to do it without worry is to unbundle items you’ve previously had bundled.

Let’s say you have a current offering that combines two products and the price is $10.  You can unbundle those two products and charge $10 for each if the value can stand on it’s own.  You should support the unbundle with the reason why you’re doing it.

Most people worry about what their customers will think and they also think they’ll lose customers.  But there’s nothing to worry about.

Why?

Because now you’re charging $10 for both items.  You would have to lose 50% of the business who were buying those products to get to where you are now.  Chances are you will lose some but the price increase will ultimately make you more money.

Let’s look at the example of Netflix. They just announced they are unbundling their offering and charging more for each of them. Here’s an excerpt from the Wall Street Journal…

Netflix Inc. boosted by 60% the price of its cheapest movie-rental plan that includes streaming and DVD rentals, triggering an outcry among customers who still use the disc format despite the growing popularity of online movies.

The Los Gatos, Calif., company said it will no longer offer a $9.99-a-month plan that allows members to stream an unlimited number of movies over the Internet and to rent one DVD at a time. In its place, Netflix subscribers will have to pay $15.98 a month for a plan that combines an existing $7.99-a-month streaming-only movie service with a new $7.99-a-month DVD-only rental plan that lets them check out one disc at a time.

Dan Rayburn, an analyst at research firm Frost & Sullivan who follows digital media, said the move “makes no sense,” predicting it will push people like him who pay $9.99 a month for Netflix streaming and DVD services—often leaving a red DVD envelope from the company unopened for months—to switch to the company’s $7.99 streaming-only plan. Mr. Rayburn said customers that make such a switch can rent DVDs from kiosks run by Coinstar Inc.’s Redbox and others for $1 a night when they can’t find a title on Netflix’s streaming service.

NETFLIX

 

Subscribers will soon pay $15.98 a month to rent DVDs and stream.

Netflix spokesman Steve Swasey acknowledged some members will be upset over the price increase. He declined to say whether Netflix expects most customers to switch to the streaming-only plan. “We still believe it’s a terrific value,” he said of the new $15.98 plan.

In its blog post, Netflix said the price change was prompted by the continuing popularity of the DVD format among consumers. “Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs,” it said in the post.

It also has more expensive streaming-and-DVD plans that allow customers to have more than one disc out at a time.

Netflix CEO Reed Hastings has made it clear he sees Netflix’s streaming service as the future of the company. Netflix isn’t even bothering to launch DVD-rental services as it expands its streaming service into new territories outside the U.S., such as Canada and Latin America.

Source: Wall Street Journal

Essentially what they’ve done is unbundled their service. They have just increased the amount they are going to get from their customers by 60%.  I can’t imagine one bit that Netflix didn’t think this through. If they thought they were going to lose more customers than they would gain from the price hike then they wouldn’t be doing it.

I’m certain they will lose some customers but I firmly believe the company will come out ahead in the long run.  Eventually the consumer will forget this happen and gladly pay the price without even thinking about.

For goodness sake, it’s their movies we’re talking about.  They can’t live without their movies, can they.

The same philosophy holds true for your product or service.  Identify areas that you can unbundle in order to effectively raise your price.  Have a reason for it and justify it with a reason why.  Engage your customers often and keep them coming back for more.  You may just notice an increase in profit this year.

Enjoy and prosper,

Jay

PS: Let’s take a look at where you can increase prices.  Get your Profit Leak Audit now.

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