Pricing is tough, just ask Netflix

July, 2011

Netflix - Cost vs Value
I’ve worked on product pricing more times than I’d like to recall. It’s a tricky business, you have to balance value, cost, perception, competitors, market factors, marketing, and many other considerations. In short, it’s a pain, and it’s not easy.

But pricing is very important to your business. It can not only give you an edge in the market, but it can also help define who you are in the minds of your customers.

But most importantly, Pricing helps to define value in the eyes of your customers

Don’t get me wrong, you can’t dictate value. But pricing specific add-ons, features, or services at a premium can have a very real impact on how people perceive the worth of those items.

Netflix’s most recent move to price streaming separate from DVD-at-home was smart (see their blog post). It was clear that they were leaving a lot of money on the table. It’s also clear that they felt that they were undervaluing their DVD-at-home service.

(Side note, being a long time Netflix customer, I always thought they were undervaluing streaming. Their blog post reveals that their internal view was actually flipped from mine; they saw the DVD as an add-on to a streaming service.)

Pricing changes aren’t something new to Netflix, their world is moving fast and they’ve had to shift things around a few times to keep prices in line. And this recent change will probably be followed by a few more.

Now bring into the mix that fact that Amazon has started to get more seriously into the streaming movie market. Now we can expect some fierce battles shaking out in this arena – there’s a lot of money to be made in movies at home.

So this brings me back to where I started – with pricing establishing value. This move is strategic in that it allows Netflix to clearly look at their streaming service as it’s own viable product with distinct profits and costs.

This will allow them to better measure, manage, and grow their streaming offering as the market heats. In the end, we can only hope that that will provide more value for all of us.