Business-Building Action from Terry Brock
A few months ago Netflix raised their prices for those who were getting 1 DVD a month with streaming. The price was $8.99. Then it went up to 9:99. Okay, I can understand that the price will increase a little from time to time. Even $1 a month in this very rough economy (roughest since the Great Depression of the 30’s). Hey, in an economy with over 9% unemployment “officially” and somewhere around 17% if you count it as it effects real people, any price increase is going to be sensitive.
However, effective September 1, 2011, Netflix jumped up to $17.99 for the same one DVD at a time and streaming service. This was about a 70% increase in the price and the market has reacted swiftly in this economy. The company has lost over 1 million users in that time.
The stock price of Netflix has reflected this change. It was over $300 earlier this year and now has fallen to around $155 as of this writing. This is not good news for Netflix management.
So now, they come out with a new service called Qwikster which is all-DVD, all the time. It will include games and I’m sure some other nifty features. Yet, is that where they need to be to satisfy customers?
Lessons for you and me? Watch out for non-buyers who recommend you raise your prices. I hear it often in association meetings. People will encourage others in the industry to raise their prices. If you raise your price, based on what some self-appointed authority in your industry says, you are vulnerable. Listen to customers. They understand that prices need to go up from time to time. They are doing it in their own businesses. And yes, they understand supply and demand when resources are tight.
However, make sure your ear is closely tuned to the marketplace (read buyers!), and not to peers. Pay attention to the buyers much more than to know-it-all peers telling you how to adjust your pricing.
Second, watch out for the inevitable human tendency to get a tad arrogant when things are going well. I’ve seen it through the years. When things are going well, a business can get a little cocky, thinking they know exactly what to do and willing to pontificate to others what needs to be done.
Again, listen to the marketplace. Netflix didn’t hear customers asking for the dramatic price increases. Hey, we would have understood if there had been slight increase. We get that. However, to jump 70% so rapidly is going to cause major disruptions.
I was a customer of Netflix. I’ve known about them since they first started and have raved about the great service they provided. I loved getting the DVDs in the mail, watching them when I wanted and then having an unlimited supply of DVD entertainment. I just paid a reasonable monthly fee (lower than the price of several videos each month at Blockbuster Video, but that’s another story). I was startled when I read of the big increase just to keep the service I had.
Then to make matters worse, I saw that I had my monthly bill of $10 and some change (local tax) on August 18th. I figured that was for the next month. Then on September 2nd I had the $17.99 fee for September! Hey, I didn’t know it was kicking in that soon. Sure, they might have sent one of those 1,000 page email messages that explained it and provided all the legal info. Okay, Netflix, you got me on that and you got me for one month’s worth of the new service.
Well, I promptly cancelled my subscription. Sure, I could have kept it for a few days to continue getting both DVDs and streaming. However, we tend to react more from emotion often. Now, I have transformed that “previously positive” attitude towards Netflix to one that is closer to the feeling I would have towards an airline after a crummy flight.
Lesson for you and me — things don’t stay the same. In business — particularly today — things change very fast. A customer can go from raving fan to disgruntled detractor in a matter of one price increase.
No, it’s not just about price. However, price is still a major factor in any buying consideration. Watch out for arrogance. Watch out for listening to non-buyers when raising prices.
For now, I’ve switched over to Amazon prime. In addition to to getting lots of goodies sent free with two-day delivery, I get a bunch of good videos available as part of the deal. For $80/year (less than I was paying with Netflix), I get streaming and shipping as a combination. Amazon has embraced a classic bundling strategy to keep customers happy.
The announcement from Reed Hastings about the two separate companies is nice and his apology is okay. Time will tell what is going to be happen. For now, for me and many other former Netflix customers, it is going to take more than a nice YouTube video to make amends. I hope they come back. In the meantime, I’m going to watch some more great Star Trek Next Gen videos on Amazon Instant Video (and yes, they have all seasons, all videos in streaming).
Sweet!
Terry Brock works with organizations to bring about positive change. He is a member of the Speaker Hall of Fame and Certified Professional Speaker. To find out how he can help your company drop an email to Terry@TerryBrock.com or visit his website at www.TerryBrock.com.
