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Comments

Becky

It's about customer acquisition. They all know that, once you get a customer, and treat them well, you have them for life. It doesn't matter how much you pay for them initially, if they stick around long enough. I think Netflix offers the best service, so if they can acquire those customers and keep them longer than say, Walmart, or Blockbuster, they'll be alright.

dlr

I think the only thing future MBA students will be using this company for is a capstone case study of corporate takeovers. NF's shareholders are disparate enough and valuation low enough for Amazon or Wal-Mart to buy out the "competition." Although NF was a first-mover, the barriers to entry were too low to prevent other bullies on the block from taking over. The only thing that could have blocked destruction of NF was introduction of pr0n, games, or books on tape (okay, books on tape was a stretch but my MBA-itis is acting up this morning) - but, it's too late to make that move now - the giants have awakened and they are hungry!

Carl Cravens

Becky,

My question is, can Netflix continue to treat their customers well at the lower price? I haven't worried much about "acquisition cost"... as you say, long-term memberships will justify the acquisition cost.

I'm just concerned that Netflix won't be able to maintain their superior customer service at this lower price. (Though I can't complain when a $4 price cut makes the 5-out plan more attractive... I could get more videos for my son and not cut into the flow of Buffy and Stargate SG-1.)

Elaine

I'm wondering if the ultimate game plan is to upsell people like Carl. (And me, too: I looked at the new prices and thought, hmmmm, the 5-out plan isn't much more than I'm paying now. maybe I should upgrade?)

Aron

The 5 out plan is 6$/disc out, the same as the 3 out plan. There might be some people that upsell, but I the overall population will grow even more towards the 3 plan.

At this point, my strategic advice for them is to offer something along the lines of:
3 out/9 limit per month: 16$
3 out/Unlimited: 25$

With such an introduction Netflix would run most of its unprofitable customers away to competitors, and by raising the price to 25$ make some unprofitable customers profitable. I believe this would be a very disruptive move that would allow Netflix to return to profitability while maintaining a lock on the members they are best served to hold on to.

A competitor with really deep pockets can break this move with a low priced unlimited plan, but they would be losing money hand over fist.

dlr

>A competitor with really deep pockets can break this move with a low priced unlimited plan...

You've described Wal-Mart's corporate strategy beautifully. Their pockets are so deep that they can stand to lose a little scratch until all the dust settles. I mean you're talking about a company that can sell toothpaste on consignment for goodness sakes!

Chase

I recently tried blockbuster. I found their turnaround time to be at least twice as high as blockbuster. Half the movies on my queue were in short wait status, and there were a few movies not available. when I canceled blockbuster, they came back offering me 6 months at 15.99. Three movies at a time like always, as well as the one extra blockbuster has over netflix, two free instore rentals a month. I wrote back to blockbuster telling them that even at 15.99, their turnaround time was horrible, and I was willing to pay 5-6 bucks to stay with netflix.

i was a netflix user but cancelled after the price hike. this lower price is probably going to bring me back.

Larry

Blockbuster is fine for me now (former NetFlix user).... Wal-Mart is ruining the world. Why is it people in CA,VT, and HI are the only ones with brains, and know not to do business with Ghetto mart?

matthew

"They all know that, once you get a customer, and treat them well, you have them for life."

Becky, I respectfully, and strenuously, disagree. I was a charter subscriber with Netflix and cancelled after a year for reasons that essentially had nothing to do with Netflix's customer service. I've since started and stopped my subscription one other time, and we're about to cancel our subscription again.

Based upon NF's attrition rate, I can safely assume that I'm not alone: there's no way that all of their cancellations are due to "treating customers poorly."

NF is in a race for its survival, and competing on price might well prove to have a python-like effect on the company until they can break the dependence on physical media.

NF has certain fixed costs (paper, labor, postage) that is very difficult to reduce. This curse will evaporate to some degree as the Tivo relationship is realized, but until then NF (IMO) needs to focus on customer retention as they clearly have less of a problem signing up new customers.

Aron

Netflix's #1 stated reason for customer cancellation is "not watching enough movies". This translates into "I'm paying more then I'm getting". Price is the key.

The subscription model is essential to this business. The "unlimited" subscription model is NOT. Those two need to be seperated.

The Unlimited plan is a runaway marketing success, much like giving away money always is. Netflix needs to break this addiction and focus on retaining those customers it can keep near profitable.

Netflix says it wants a land-grab for subscribers prior to VOD. What use is a large number of subscribers when they can leave so freely and easily (currently 140,000 leave every single month and growing)?

Netflix wants to accelerate Blockbuster into bankruptcy. Well.. Blockbuster is following Netflix's lead on pricing. If Netflix made its offer much less attractive to high-usage renters (by introducing limits) they would bounce over to Blockbuster and Blockbuster would suddenly find itself with greater losses. Job done, Netflix wins.

1 + 1 = 2. Easy as that ;)

KJ

Speaking of price war, I just found this netflix link for an $11.99 price plan.

http://www.netflix.com/Default?mqso=60189839

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