You Shouldn't Know Netflix is Raising Prices Yet
Netflix made a huge mistake with its massive price increase. Going with a 60% jump at once instead of gradually? Just crazy, right.
Nope, that's not where it bumbled. It was in the timing, not the amount.
Last week, Netflix announced it would be increasing a $9.99 monthly plan -- unlimited online streaming with a mail opportunity -- all the way up to $15.98. A flurry of nasty comments washed over the Internet.
Netflix is such a closely watched company, the dramatic step naturally brought a flood of media coverage. A brand built around low-cost service making a move in the opposite direction is journalistic low-hanging fruit.
Shopper scientists who monitor brainwaves; top marketing professors; and brand managers at Procter & Gamble might all have different takes on the optimal approach to a price hike. Does it make more sense to do it gradually - 10% here, 12% there - or swing for the fences with an immense increase in one at-bat?
Netflix did it right by acting like a steroid-bolstered slugger from a business standpoint.
In the face of potentially sturdier competition from Blockbuster (which has a new owner in Dish Network) and Redbox, the new revenues should provide it more for marketing investments.
Also, the dollars can help insulate it from various pricing structures and usage caps that broadband providers may increasingly implement. Those could decrease consumer usage - maybe causing some to cancel -- and cost Netflix more to make its streaming service available.
And, as Netflix's costs for content increase, it should have more to spend. Key will be if the added dollars will help it cut deals to expand the available content available by streaming. That may be the company's biggest challenge.
But announcing the price jump July 12 was a PR blunder. There's a reason a company or politician under siege is wise to release all the potentially damaging material in one fell swoop. The story may sting, but if it continues coming out in drips and drabs the pain worsens.
Netflix should have waited to make its announcement until this coming Monday during its second-quarter earnings call -- or preferably after. Was there a rush? How about the week before Labor Day when everyone is at the beach?
Unavoidably on Monday, there will again be a mass of coverage mentioning the jarring "60%" increase, maybe giving subscribers who hadn't heard about it pause, and potential new customers even more about signing up.
The fact there's a compelling offer of a streaming-only package at $7.99 is likely to get lost in the news.
A number like "60%" clouds perception, and could make people wonder if increases won't be more frequent going forward.
Netflix would have been even smater to wait to make the announcement after it reports earnings because stories Monday are now likely to start with:
"Netflix, which just announced a 60% price hike, said profits soared in the second quarter ..."
Hmm, a huge price increase for a company awash in cash? Sounds like everybody's favorite: oil companies.