Netflix: Case Study on Pricing Strategy and Customer Retention

This case study analyzes Netflix's pricing strategy and its impact on customer retention. It suggests solutions to retain customers while maintaining costs and improving goodwill.

MuddleG-MKT87505-14: NETFLIX 1
Netflix
Grant Muddle
California Southern University
MGT 87505
XX June 2018

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“Case Study: Netflix continues to change the face of in-home movies around the globe.”
Introduction
The sStreaming giant Netflix has changed the face of entertainment industry by allowing
people to watch an unlimited supply of movies and TV shows at from the comfort of their homes
through a single platform. The case highlights a change in the pricing strategy adopted by the
brand where in which users had to pay a different fees for Netflix’s streaming service and their
DVD by mail service (Hawkins & Mothersbaugh, 2016). The decision has invited an immense
wrath from the customers over on various social media platforms. This is because the customers
will must now need to pay an additional 60% of total their total subscription fees. The move has
encouraged competing brands to promote their product offerings, and the customers have
threatened to cancel their subscriptions.
Analysis
The pPricing strategies adopted by any business play a significant role in attracting
customers (Armstrong et. al., 2015). The primary problem identified in the case is the issue of a
new pricing strategy adopted by Netflix wherein the overall cost to customer is raised by 60%.
HoweverAlthough, this increase in price is necessary for the brand in order to meet its expansion
costs, it s. This may lead to a drastic reduction in the company’s number of subscriptions, for
the brand which in turn could result in reduced revenues for Netflix.
The brand also faces the second problem faced by the brand is theof reduced goodwill
that that the brandNetflix has to experiences due to this change. Post theAfter announcement of
the new pricing strategies were announced, customers have resorted to various social media
platforms to express their disappointment in the matter. Social media is a powerful tool that
largely impacts a business’s brand image (Hudson et. al., 2016) and . This includes platforms

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like such as Facebook, Twitter and Instagram. Consumers are extensively using tThese platforms
are being extensively used by consumers to reach out to brands which has created transparency
and allowed fora two- way communication between organizations and their customers.
HoweverThus, if a large number of people post negatively about Netflix, then the brand’s
goodwill of the brand would be hampered, leading to a negative brand image.
The third problem faced by Netflix faces is that the adopted pricing strategy change in
pricing strategy adopted by Netflix has in turn encouraged competitors to put in additional efforts
in promoting their offerings products and services to the customers. Competitors of any
businessMost businesses are often looking for opportunities where they canto gain a
competiveng advantage over other players in the industry, which is . This is why it becomes
imperative for businesses to keep a tabs on their competitor’s strategies and work towards
countering these strategies in an effective manner so as to gain a competitive advantage in their
industry of operation (Ranjith, Patel & Rao, 2017). The increasing competition and through these
additional efforts by competing firms can provide disappointed customers with alternative
offerings in the face of changing pricing strategies and disappointed customers. This competition
can lead to a major shift in Netflix’s customer base from Netflix to its competitors like
Blockbuster, Prime Vvideo, and Walmart.
Solution
The primary problems Netflix faces are d by Netflix is reduced goodwill, increasing
competition and hence reduced customer base. The brand’s new pricing strategy is important for
the brand to sustain its costs, and survive the competition in the market, and as well as retain its
customer base. Therefore, in order to address the same, it is critical that Netflix adopts strategies

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to counter the effect of the new pricing strategy to address the issues it faces, while retaining its
customer base, maintaining costs and improving goodwill.
The first solution Netflix could offer ed to Netflix would be effective and extensive
promotions. Netflix has adopted a premium pricing strategy which now. This strategy refers to
the process of pricing business offerings higher than industry level in order to position the
product or service effectively in the minds of customers (Nagle & Muller, 2017). Premium
pricing strategy should be adopted by brands in order to target premium consumers and position
the brand effectively among this customer segment. Therefore, it is imperative that through all
platforms, Netflix continues to promote itself through all platforms as a premium service offering
meant for high- end customers.. This will Proficient promotion strategies of Netflix will assist
the brand in attracting more customers.
In order to makeTo en sure Netflix’s that the offerings of Netflix indeed remain as
premium service, the brand will have to work upon the content it offersed by the brand. Netflix
must curate unique TV shows and, movies and tie up with distribution and production
centersmake sure . This will ensure that new movies are streamed on Netflix making it available
to a larger audience. Allowing new content to stream on the platform will help in keeping
viewers entertained. If Netflix continues to offer unique content, then not only will the existing
customers stay retained with the brand, but even new customers would also be attracted to buy
their subscriptions.
Secondly, bBrand positioning is the image that a brand’s customers have about the
product or service in their minds of its customers (Solomon, 2014). Netflix must work towards
setting the right positioning itself positively in the minds of customers. This positioning can be
done achieved through by establishing effective communication with customers and curating

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creative content for the brand’s advertisements. Creative advertisements aim to create a positive
image in the minds of consumers. Netflix must also become more active on its social media
platforms including Facebook, Twitter and Instagram. Social media communication between the
brand and its customers also helps businesses in retaining customers (Kumar et. al., 2016). Theis
extensive communication that Netflix will hold have with its customers will help the brand in
improveing its goodwill and retaining its customers through induced loyalty and connections.
A third solution offered to Netflix would be go reverting back to its old pricing strategy
in order to retain customers. Once the price is reduced, Netflix would have to ensure that the
number of customers increases enough for the brand to be able to operate on economies of scale.
They can ensure this by offering lucrative discounts and adopting effective marketing strategies
to lure an increased number of customers. Existing customers will continue their subscription
and new customers might be attracted to join Netflix if the pricing strategy remains the same.
This is because customers started retracting from Netflix only after they changed their pricing
strategy and if that problem is resolved then the customers are expected to sustain their
subscriptions.
A fourth solution offered toLastly, Netflix would couldbe to adopt a new pricing strategy
all together which is known as “Freemium pricing.”. The fFreemium pricing strategy refers to
the process of offering basic services for free while taking an additional free for the brand’s
premium services of the brand (Wagner, Benlian & Hess, 2014). Therefore In this regard, Netflix
can offer limited content to its viewers free of charge, but for premium content including new
movies and TV shows, the users would have to pay an additional amount for premium content
including new movies and TV shows. While In adopting this strategy, the brand will have to
make sure that the free services offered by the brand are attractive enough for customers to buy

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premium services. For example, movies and TV shows that were released four months ago can
be offered as a free service while the ones that have been released recently can be offered as a
premium service. Once customers gain an idea about the quality of content offered as free, then
through effective advertising, Netflix can attract them towards newer content. These advertising
strategies will effectively include releasing trailers of new and upcoming shows.
Justification
The selected solution from the above mentioned four solutions is the first solution. The
solution that recommends Netflix to adopt a premium offering and premium pricing strategy.
This solution has been adopted selected because the brand’s increasing expansion of the brand
requires additional resources. Therefore, in order to survive its own expansion and growth plans,
the brand will have to charge its customers a higher price from its customers andto ensure that it
has enough resources to sustain itself inn the industry.
The solution also recommends that Netflix must work towards improving its content
offerings in order to make ensure that customers are willing to pay a premium price for the
services. This In this solution, would include Netflix would effectively tying team up with
various production houses, directors, and distributors to ensureto release that new movies and
TV shows are exclusively released on Netflix before other streaming channels. The brand must
also work on creatively curating its own content by recruiting an internal team of directors,
DOPs, actors, and technicians. This team would be expected to curate top quality content for
audience. These exclusive offerings by Netflix will make it easiery for customers to pay a higher
fees for the brand’s subscription.
Netflix’s The predominant offering by the brand must be its differentiating factor and
must provide Netflix with a competitive edge against Blockbuster, Walmart or Amazon’s pPrime

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Vvideo. As long as the customer’s accept Netflix’s primary offering is accepted by customers,
price will play a secondary role in the minds of customers. Improving the offering would also
include making their platform more user- friendly and enhancing their reach. Viewers should be
able to watch the latest movies in an advertisement free andin a hassle -free manner without
advertisements. .
At the same point of time, Netflix must surely work towards adopting extensive
promotion strategies in order to set the right correct positioning in the minds of customers and
enhance brand awareness. This would involve improving its social media presence and other
forms of traditional as well asand digital marketing strategies adopted by the brand. Increased
presence of Netflix at social media platforms and traditional media channels will lead to
increased awareness of the brand.
Summary
Netflix has adopted a new pricing strategy thatwhich is increasesing the cost to customers
by approximately 60%. This move by the brand has attracted an immense wrath from customers
and as well as additional efforts by competitors to promote their products and services over
Netflixbetter. This included additional advertisements and increased presence across digital and
traditional media channels. This report aims to analyze various solutions to for the brand in order
to sustain itself within the industry while maintaining its cost through effective use of resources.
The solution recommended to the brand involves retaining the new and premium pricing strategy
and working towards their offerings to ensure that they are worth the price paid by consumers.
The Netflix’s premium pricing of Netflix must be matched by the quality of services
offered to the customers in order to ensure customer retention as well asand attract new customer
sattraction. This would includes curating new content and offering to stream innovative, unique

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and distinct content on a user friendly platform. Improved service quality would not only help
Netflix in attracting and retaining customers but will also ensure that the brand has a positive
positioning in the minds of customers.

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References
Armstrong, G., Kotler, P., Harker, M., & Brennan, R. (2015). Marketing: Aan introduction. New
York, NY: Pearson Education. United States.
Hawkins, D., & Mothersbaugh, D. L. (2016). Consumer behavior: Building marketing strategy.
New York, NY: McGraw-Hill Education.
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Hudson, S., Huang, L., Roth, M. S., & Madden, T. J. (2016). The influence of social media
interactions on consumer–brand relationships: A three-country study of brand perceptions
and marketing behaviors. International Journal of Research in Marketing, 33(1), 27-41.
Kumar, A., Bezawada, R., Rishika, R., Janakiraman, R., & Kannan, P. K. (2016). From social to
sale: The effects of firm-generated content in social media on customer behavior. Journal
of Marketing, 80(1), 7-25.
Nagle, T. T., & Müller, G. (2017). The strategy and tactics of pricing: A guide to growing more
profitably. United Kingdom: Routledge. United Kingdom.
Ranjith, V. K., Patel, P. M., & Rao, R. K. (2017). Cartels, cCompetition and cCompetitive
aAdvantage. International Journal of Applied Business and Economic Research, 15, 455-
460.
Solomon, M. R., Dahl, D. W., White, K., Zaichkowsky, J. L., & Polegato, R. (2014). Consumer
behavior: Buying, having, and being (Vol. 10). New York, NY: Pearson.
Wagner, T. M., Benlian, A., & Hess, T. (2014). Converting freemium customers from free to
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