Why Netflix Continues to Reel in New Subscribers Despite Price Hikes

Netflix-price-increaseNetflix, which now counts more than 48 million subscribers in 40 countries, today rolled out its plan pricing increase to its customers. During a recent earnings call, CEO Reed Hastings said Netflix would raise the price of its streaming service for new customers by $1 to $2 a month in select countries, including here in the U.S., where the business still derives most of its sales and profits.

The Netflix move has left some people grumbling about whether the increase will be a repeat of the company’s negative experience in 2011. Netflix lost more than 800,000 subscribers in a few months by raising prices up to 60 percent and dividing up its streaming and DVD rental services into separate products under different brands. The resulting fallout included a steep drop in the share price on Wall Street, and doubts about the future of the company. Soon after, Netflix turned tail and returned to its familiar and proven model.

Despite rumblings, Netflix came back with a vengeance and the movie-and-tv-show rental giant is on a roll. This price increase will stick, and here’s why.

Hastings has learned from the company’s past mistakes, directing a number of steps to ensure the successful rollout of the price hike. First, Netflix is applying the increase to new subscribers only, giving the existing customers what amounts to a “loyalty bonus.”

Second, they’re alerting subscribers far in advance about the increase. Finally, they tested the move earlier in Ireland, where subscribers accepted the new charges without much pushback. Netflix is doing it right this time around, thus becoming a case study in the smarter way for companies to impose price increases.

Key to all of this is their recurring revenue engine because it provides them the flexibility to offer different plans and pricing and, if necessary, make changes quickly to those offerings.

With agile billing technology, Netflix can easily test a number of pricing plans, and then expand the plans that work while withdrawing those that don’t. It has also given them the ability to respond to changing market conditions quickly ─ all important to the Monetization of Things like movies.

To continue to be successful, Netflix must manage an ever-evolving marketplace while gaining the trust and loyalty of increasingly demanding and ever-fickle customers. Its supporting technology allows for just that, letting them stay ahead of competitors and continue dominating the video marketplace.