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?