Netflix’s New Pricing: Let the Research Speak
Michael Greeson, Founding Partner, Research
July 15, 2011
Depending on whom you believe, Netflix’s new pricing scheme is either a disastrous misstep or, as AdAge editor Brian Steinberg opined, a rebalancing of the scale at a time when customer demand is very high: in his words, “like selling a coke on a summer day.” The truth, of course, lies somewhere between the two.
In the end, the final arbiter will be the consumer, not the spin-doctors. And that is the source to which TDG this week turned, if only to gain a clearer perspective on the likely impact of Netflix’s new pricing strategy.
TDG surveyed a random group of 500 Netflix subscribers that use both DVD-by-mail and video streaming (dual-service subs) as to their perceptions of the new pricing and likely “next steps” given the price increase they now face. Netflix subscribers that exclusively used one or the other service were not included in the survey because their prices will likely have remained the same or, in some cases, declined a bit.
This randomly selected group was also screened regarding their profession, meaning those working in fields like consumer entertainment and technology were excluded from participating. Those working in such industries have already cast their votes in online comments and e-zine reader surveys. Their concerns are no less legitimate than others, but they are no substitute for solid market research. Call me old-fashioned…
Though the full results of the survey will not be available until next week, I thought the OTT Monitor a perfect venue to share a few nuggets of statistical goodness—inherently imperfect, as is consumer research by definition, but statistically representative within a relatively minute margin of error. In other words, it is highly advised to take seriously the stuff that follows.
First, more than 70% of dual-service Netflix users are to varying degrees disappointed with the new pricing scheme. This is hardly surprising, for they are being asked to pay more for a service they enjoy but for which they previously paid less.
Second, in terms of the impact Netflix’s new pricing scheme may have on dual-service subscriber’s future behavior:
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44% are to varying degrees likely to cancel their DVD-by-mail service but keep the streaming service;
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34% are to varying degrees likely to cancel their streaming service but keep their DVD-by-mail service; and
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37% are to varying degrees likely to cancel their Netflix subscription altogether.
One could say with confidence, then, that—among dual-service Netflix users—the new pricing scheme is being received poorly.
Then again, the fact that one third of dual-service subs are leaning toward cancellation is not the same as saying one third will in fact cancel their Netflix service. TDG does have an algorithm to help predict such conversion rates, but we tend to save that for paying customers! We can say, however, that in general between a third and half of those inclined toward a particular economic behavior actually follow through, which pegs conversion at between 12% and 18% of Netflix subscribers.
Conversely, the data suggests that at least two-thirds are not going to cancel their service but make an adjustment, and generally in favor of streaming…which is exactly what Netflix wants to see. Why? Because the current pricing strategy did not accurately exploit the dynamics of shifting consumer preferences, nor is it capable of supporting Netflix’s long-term aspirations.
For those looking for a more extensive discussion of this topic, TDG will soon release a “flash report” on this very subject, examining this new research through a variety of lenses including demographics (age, income, presence of children in the home), Netflix use (number of DVDs rented, hours spent streaming, service tenure), and a variety of other factors. Stay tuned…
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