Fool.com: Netflix Pricing Strategy

The Motley Fool has an interesting story about the price war between Netflix and Blockbuster, Netflix's Spin Move. While Netflix is more expensive on the 3-out plan, Netflix is using lower-priced plans to lure in new customers and then upsell them to higher plans:

Look closer, though, and you'll see that the real coups here are Netflix's $9.99 and $11.99 plans. Amazon.com (Nasdaq: AMZN) debuted its UK DVD-rental with two very similar options, and for good reason: Plans with a capped number of total monthly rentals allow for a lower price point and higher margins, and they enable the company to capture a greater market share. For that very reason, in its latest quarterly earnings release, Netflix guided down on revenues but reiterated its earnings forecast -- the lower-priced plans bring in less cash but are more profitable. And if Netflix's guidance is any indication, their popularity seems to be growing.

The prospect of starting out easy is a powerful incentive. Two years ago, when I first raved about Netflix to my friends, their top reason for not joining was that they simply didn't watch enough movies to warrant the three-movie plan, regardless of price. Allowing customers to start slow (and cheap) with a limit of four monthly rentals, or even one movie at a time, gives Netflix a chance to let newcomers get accustomed to the service. New members can build up their queues and, in the process, decide just how many movies they actually want to see. The company hopes they'll eventually expand their membership. (Setting up long queues also makes defection to another DVD-rental service slightly more cumbersome.)

What do you think? Do you like the lower-priced options? How often do you change plans?

Comments

I am sure both types of plans, have their fans. With a family of 6, I have no trouble using a 6-8 out plan. I'm sure others find the 1 or limit-4 plans just fine.

I don't know, if I was NF, if I would put all my faith in the 9.99-11.99 plans however.

[Betty Allison]

Dear Netflix,

I am not a fool so I do not understand your story. But please, STOP charging my credit card! I have requested this several times. I do not care if it is only 9.99 or even 11.99, I DO NOT WANT YOUR SERVICE!

Betty Allison

[Your Friends at Netflix]

Ms. Allison, you should have looked at the Terms Of Service when you were signing up. Th contract length is12 months, and should you want to cancel your account before the contract length is up, the cancellation fee is 99$.

- Your Friends at Netflix

[Betty Allison]

I only found this site thru a Google search. It appears to be some type of internal Netflix site. Is that why you post articles saying what fools customers are? I do not see anything in the TOS about a cancellation fee. I demand you people stop billing me!!! I will contact my card company and dispute these charges. Is this how your sorry company operates? I will make sure I let everyone I know understand this. I will never use Netflix again!

[Contact information removed]

[Sonja]

Betty this is not a site for NETFLIX, it's a blog that DISCUSSES NETFLIX and some of the other DVD by mail services. You need to go to netflix.com and contact them DIRECTLY.

Betty, this is a site for Netflix fans and critics. It is in no way associated with Netflix.com. Your complaints need to be made with Netflix. The "Fool" comment is in regards to an online magazine known as the "Motley Fool". This is a financial magazine. It is not referencing customers as fools. It is merely the name of the company.

[Aron]

Given the average disc rental is in the 6.7\month range, it's clear that a vast majority of customers could be quite well served by the 2-out plans.

Netflix has crafted the pricing of their plans such that if a large number of subscribers convert to them it won't hurt their bottom line. I'm somewhat skeptical that this is accurate, but at the same time I think it should benefit the rate of customer cancellation since they won't be paying more then necessary.

I think the moves they've made is an effective smoke screen around what was the predominate point of comparison in this market: the 3-out plan. It only takes a certain amount of time until articles like the Fool come out that begin to show an aging of the old way of discussing price. I also can't count the number of times I see articles unfairly quote WalMart's 2-out plan price vs. BB and Netflix's 3-out.

[Mike K]

Betty,

Sorry about the confusion.

Thanks to everyone else for the comments. ;-)

- Mike

[david]

I'm on the 2 out plan (14.99), but I'm seriously considering scaling down to the 1-0ut 9.99 plan. Even with 2 out at a time, I'm watching too many movies and staying up way to late. I'm simply unable to pace myself. I love the variety of options nflx offers. It's smart business.

[Christian]

Poor Betty... lol.

I currently have the 1-out-at-a-time and it is working great! This summer (when my shows end for the season) I am going to upgrade to 2-out-at-a-time unlimited so I can use my other profile devoted to old television series. Previously I used the 2-out-at-a-time 4-max and I sometimes did not watch all four movies. I prefer the idea of having no limit to how many movies I can now watch.

[ghlu]

I've always been on 3-out plan for both NF and BB. But I think Netflix's 1-out unlimit plan for $9.99 is really smart. Usually if you plan right and have 1 day delivery, you can have netflix sends discs to you twice a week. With 1-out plan and assume 4 weeks/month, this works out to 8 discs/month and $1.25/disc, which is profitable for them I believe. Similar argument holds for 2-out unlimited plan too.

Man, I sure irated her. What kept her from typing in netflix.com and reporting her problem directly? Instead, she posted her personal info on the first site that came up on "Netflix" search.

[Betty Allison]

Sorry if there is some confusion. I have emailed Netflix thru the regular customer service page and get a email back saying how to cancel my account on the my account page. I have done that already but I keep getting charged. No one seems to help. I went to Google and searched for -Netflix -Support, and this site is right near the top. I thought it was a Netflix support site. The first post I see is about "fools" and pricing plans. I thought Netflix was making fun of its customers. I do not know what a "Motley Fool" is, sorry. I guess I will keep emailing them and contact my credit card company.

Betty Allison

[Deleted]

Hateful content deleted by Mike K. Do I need to require registration for comments?

[david]

Hey, be nice. You need some anger management.

[Mike K]

I deleted two posts that were offensive, mean and off-topic. I feel like a babysitter. Yeesh.

- Mike

[Betty Bright?]

I'm suprized Betty even owns a DVD player n\much less how to operate one.

[bors]

the netflix flexable pricing is great.
iam on the 3 disc plan,
i just ordered a digital
cable box, hbo, dvr package from Comcast
for 15$ a month. instead of canceling
netflix i may switch to 1 disc plan
to complement a new cable package.

[Cosmo]

lol

I guess AOL is making it too easy to get on the Internet these days.

[trey]

how did you know it was aol? Just kidding, I know why hahahhah!

[Marie]

I'm new to Netflix and I selected two out unlimited plan (14.99). So far it's working great and I don't anticipate changing. Netflix was excellent when days before the introductory offer was to end, I switched from 3 out unlimited to my current plan of 2 out unlimited. Netflix changed my account immediately. I recommended my friends do this also - take advantage of the 3 out unlimited during the introductory period then switch down if they desire. :)