Thursday, January 17, 2019

Netflix Price Increase Illustrates Power of Powerful Brands

Consumers are price conscious, it is safe to say. So what requires explanation are instances where consumers--while seeking value--are willing to spend money for value. And perhaps nothing better illustrates the value of a valued brand.

Consider the coming increase in Netflix prices. One survey by The Diffusion Group suggests that a price increase of just $1 more per month, eight percent of Netflix subscribers are likely to cancel Netflix.

Netflix is raising the cost of its basic tier by a dollar, from $8 to $9 a month. The standard tier now will $2 more per month, up from $11 to $13, while the premium tier cost will rise from $14 to $16.

With the very-important caveat that consumers often say they will, or will not, do something, some of us would bet that Netflix now provides enough value that the overwhelming proportion of consumers will not desert. That did not happen the last time Netflix raised prices, for example.

Perhaps just as important, a recent price increase of similar magnitude by Amazon Prime--which some surveys suggested might have catastrophic results--did not slow growth, even if some customers might have departed.

Consider the impact when Amazon Prime raised it prices by 20 percent, from $99 annually to $119 annually, in 2018. According to one study, a whopping 45 percent of Amazon Prime customers indicated they would cancel their membership. Obviously that did not happen.

Undoubtedly there was some churn. But it appears the price increase did not have a devastating impact. According to one survey, perhaps six percent did cancel. But U.S. and global Amazon Prime memberships continued to climb.

There are other likely impacts, as well. As Netflix raises the price umbrella, other valued streaming services will have more room to raise their own prices. That might include Amazon Prime itself, Hulu and possibly HBO Now.

On the other hand, higher prices for Netflix make harder the challenge for the scores of upstart and specialized services hoping to gain a foothold in the streaming market.

So Amazon Prime, Netflix and Apple provide key tests of the expected value of a brand, which is precisely that a valued brand allows a supplier to charge more. Valued brands can raise prices. Commodity suppliers generally have a hard time doing so.

No comments:

Public Policy is Devilishly Hard Stuff

Public policy success always is harder than you might think, if only because the causal relationships between a policy and an intended out...