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We tore apart Netflix's pricing strategy by collecting data from 4.5k Netflix customers and found the following: 1. Core willingness to pay is spot on, but as people have more kids, their willingness to pay goes up 2. There's no difference in willingness to pay when it comes to genre preference 3. Netflix could make much more money by better internationalization and better feature differentiation on the high end

  • AA

    Anuj Adhiya

    over 2 years ago #

    Fascinating stuff as always @patticus.

    re: kids

    Wanted to add some more flavor to the family dynamic.

    Most parents are short on 2 things: mental bandwidth and cash. With that in mind...

    1. Willingness to pay as you have kids becomes a no-brainer because its also just plain cheaper than going to the movies (which can vary from $40 -$100 PER movie for a family of 4 #DamnYouIMAX3D).
    Yes, it is used as an electronic babysitter at times but the bigger dynamic just is that it's cheaper to wait for movies to come to the screen at home.

    2. Having said that, given all the other content options available - there almost nothing that anchors a family to Netflix.
    Its not more convenient to fire up Netflix than it is to press the On-Demand button or the Amazon prime video button.
    Many times movies are available on-demand from your cable provider before Netflix.
    It's still cheaper to shell out $5.99 per movie for an entire family to watch.

    Things are only going to get worse for them once Disney launches its own streaming service and they lose all of that superhero/Star Wars/Pixar/every-Disney-cartoon-ever content).
    Try "onboarding" kids to unknown characters and shows on Netflix and your head will spin at how quickly a parent will find a different content provider with something more familiar.

    3. No data to back this up, but I cannot see any family (that I know) paying more just to get higher-quality streaming. HD is table stakes ever since HD TV's became super cheap and phones became smart.
    So if they don't offer HD, parents will just look to who they have access to that does. Kids will just suck it up. ('cos "You get what you get and you don't get upset").

    The same dynamic applies to paying more for unlimited users.
    Again, there are just too many other options - everything to free content from cable providers and Amazon Prime that don't need any extra mental bandwidth to get to and use.

    Even if those options weren't available, they'd just partner up with other parents and become part of their unlimited user pool and/or and share passwords - ('cos y'know: https://www.washingtonpost.com/news/the-switch/wp/2018/02/21/you-dont-have-to-feel-guilty-about-sharing-your-tv-log-in/?utm_term=.2c39beb64cc5).

    Bottom line - squeezing families for more cash doesn't sound like it would work.

    re: internationalization
    I think you're spot on here. But I think there might be another dynamic at play here as well.
    I was in India a few months ago and Netflix is pushing hard there - especially its unique content (you've never seen so many billboards for "Bright")
    From what I could tell, people over there want to be up on the latest hip shows that everyone in the US has access to. Not being able to binge watch that super cool show all their friends in the US are tweeting about is an attack on the fragile ego.
    I think if Netflix were to put some more faith in human vanity and tested dialing up the "watch what the cool kids are watching" factor, the learnings would be interesting. :)

    One thing I've been wondering about is whether Netflix should follow Amazon's lead and get into the physical world as a way of creating a new pricing tier.
    In other words, just as you now have an Amazon grocery store that you can only shop at if you have their app (connected to your credit card info), what stops Netflix from starting their own theatre chain that:
    a. only Netflix members can access and
    b. is the only place you can watch Netflix blockbusters at (think of the ancillary soda/popcorn/candy revenue).
    Of course, this assumes they get great content/content creators on board but they've shown the willingness to pay for talent.

    • PC

      Patrick Campbell

      over 2 years ago #

      1, 2. I'm all about the electronic babysitter (even without kids) :) I think you're right when it comes to Disney, Amazon, etc. getting into the game, but the kicker here is the amount of cash Netflix is spending on original content and the relative price points. While content doesn't drive willingness to pay differentials, it still may cause conversion differentials - get disney for the kids and netflix for the adults. Both price points are still relatively low enough to sustain everyone in the market. Disney entering the market will definitely be interesting and if there is pressure (We'll have to collect some data to see), then Netflix can certainly compete with how much cash they're spending and likely make gains on the internationalization side of the house.

      3. Never said they should squeeze families for more cash - just thought it was interesting. :) They wouldn't be able to do this effectively. Unlimited users on the other hand, I think they could definitely get more cash for this with some technical enforcement. Keep in mind people will still share and that's fine, but we're talking about 100M+ people (and growing) - they don't need a large portion to upgrade to move the needle massively.

      Internationalization - your point on India is proving my point a bit (but we didn't have time to expand too much in the episode) - they need to treat each market differently for pricing AND packaging/positioning. Good point to highlight as you've said.

      Physical world - This is a good point. I'm not sure this is the next thing that should be on their list, but certainly think breaking into the live events market will be an extremely effective way to start taking up more time from people. With the birth of Moviepass you may be on to something though.

      **QUESTION FOR YOU THOUGH:** What do you think about more merchandising though? After all, Star Wars made more money on retail than it did for the actual movie.

    • KB

      Kyle Byers

      over 2 years ago #

      Great points.

    • KF

      Katy Flatt

      over 2 years ago #

      re; Disney

      I think you're right on about this being an issue with the current use of Netflix for kids -- but I think the migration will come from the adults. It's not terribly difficult to find a few-to-many non-Disney kid-oriented shows on Netflix, but when it comes to what adults have to tolerate, they're more apt to cling towards the familiarity and hidden adult jokes of a Disney/Pixar experience. At the very least, I am completely speaking for my own abilty to withstand children's television/movies.

  • PC

    Patrick Campbell

    over 2 years ago #

    Hey Everyone - author of the research. Happy to answer any questions today. :)

  • SM

    Sterian Mihai

    over 2 years ago #

    I see we're going for the B2C market with this one!

    @patticus First of all, I have a feeling the person who did this pricing page has extensive B2B experience. 0 personality and 0 personalization based on buyer personas. It's B2C, a clearly more emotional environment. We don't NEED an HD movie streaming solution in our life, we want one. We lust for one. The Basic plan can easily be the Personal plan and the Premium plan can be the Family plan.

    UHD is relatively new and there are not a

    I feel like they could up the price a bit on the first tier and make it HD at 9.99 and remove the second tier ( given the increased popularity and demand in HD TV's, it will be the norm soon ). It's in such an awkward position. It feels like you either want to either pay for HD, or you wanna pay for more devices. I mean, single people and couples will go for the Personal plan and then there are the families. Maybe make the middle tier UHD and give it to pretentious people. They are developing more UHD tv series now so it's a user base in it's own.

    But I mean, maybe they saw it in their data that this is actually an anchoring point for a pricier package.

    @anujadhiya I liked where you were going with the Amazon idea but I don't think it translates to theaters. They are a very expensive and risky bet. I was thinking more about creating their proprietary technology for binge-watching movies and tv series.
    I mean, most people who bought Amazon Echo are using it as a speaker. And if you want to be able to say "Alexa play Metallica Enter Sandman", you need a paid subscription to Amazon Music or Spotify. Given they sold millions of Echo's all over the world in 2017 - I have a feeling Spotify also had a spike in new paying users. I mean, they want that feeling to verbally order a song and it then plays the song, they are paying for the magic. We are talking about B2C, so it's fair to say we are talking about habit triggering emotions.

    One thing I'm thinking is partnering up with the ISP, given that 4k shows generally eat a lot of bandwidth. Make Netflix only bundles that cater to this audience? I mean, this tilts a bit against net-neutrality but it is a fact that you need good internet to stream 4k ( and also on multiple devices ).

    • PC

      Patrick Campbell

      over 2 years ago #

      Ha. Never opaque about my intentions. ;)

      Your points on the plainness/lack of personality are great, but I'm also thinking they're in a unique problem across SO many different personas with SO many different preferences that they almost need to go plain to average out the experience on design, UX, and technical levels. I do think there's some improvement on personifying the points you're talking about though - making the UHD more lustful and all that.

      Re: good internet - we didn't have time to research this part as much, but this is a really good point considering a lot of the countries that hinge on their expansion likely don't have as much bandwidth and such.

  • CL

    Cassie Lance

    over 2 years ago #

    This is awesome. Hardly ever sit through your other vids, but there's something compelling about watching this. Sort of capitalizing on the established behavior of people watching movie or gaming breakdowns. Really love this idea, please please continue. But also post them to youtube since I think you'll actually see a huge bump!