Netflix, Inc. is one of the most prominent e-commerce companies providing movies and television services to customers. The company was founded in 1997. It started by offering online movie rentals and now has expanded its services to provide other entertainment services like television streaming. The number of subscriptions has been increasing steadily over the years (Netflix, Inc., 2011).
Netflix Pricing Issue
It is important to note that in a free market economy, the levels of demand and supply determine the prices. The law of demand is responsible for price fluctuations in the market. Since the membership to Netflix services has been increasing tremendously, the demand for services has been on the rise against supply.
Therefore, it is economically sensible for the company to increase the prices of the products (Ball & Seidman, 2011). Even though the amount by which a company may increase prices of its products is decided by every individual company, the 60% increase in price by Netflix is justified due to the growing demand for its services worldwide.
Looking at the trend of Netflix’s customers increase since its inception in 1997, it is evident that the need to provide more services to meet increasing demand is necessary. Besides, the increasing number of members subscribing to both television and DVD rental services might have increased the cost of operations for Netflix, especially in terms of overhead. Therefore, in order for the company to increase and retain its profit margins, it is important that it increases its product prices by 60%.
In addition, Netflix sources DVDs from producers and hence they pay some fees in order to possess the products. It is possible that Netflix might have entered into an agreement with its major suppliers to pay certain fees that might have also increased its operation cost and hence the need for price increment of the products. This is crucial if Netflix is to stay in business and earn share value for its shareholders.
At the inception of the company, streaming and DVD rentals were still subscribed to by few customers. However, due to growing access to both services, they have been growing at significant rates. Because of this, the two services are accessed by customers with different needs.
This makes it important for the two services to be separated and DVD rentals let to operate independently. This will ensure that the company attends to effectively to individual customers’ specific needs. In addition, price structuring for both streaming and DVD rentals is different.
Therefore, to maximize the profit margins and also services to customers, it is appropriate for the company to separate its DVD rental services from streaming. Besides, this move will also make it efficient for the company’s accounting officers to have sufficient financial controls within each line of product. If the two services are left together, it may not be easy to identify their individual profitability, especially due to the fact that customers for both streaming and DVD rentals have been steadily increasing over the years.
Increase in the price of products is mainly influenced by economic or market forces (Pride & Ferrel, 2010). This may be the basis on which Netflix has increased the price of its products by 60%. However, this increase in prices may backfire if the company does not make effective its customer services and make efficient its service delivery to both existing and potential customers.
After price increment, it is crucial that the company should improve its service delivery system and also respond appropriately and kindly to customers’ concerns. This implies that the customers should access the company services with more after the price increasing. This will give them added value and hence make them justify the price change. Besides, every customer’s complaints should be taken serious.
This fact is reinforced by the genuine perception of customers that the company should consider them crucial to the company’s existence and success. It is important to realize that customers always want to get maximum utility for the amount of money they use on company’s products. The bottom line for convincing the customers not to leave after price hike is to improve efficiency in service delivery and also enhance the ease of access to its services by the customers (Engelbrecht, 2007).
Netflix was founded in 1997 as an online company offering online movie rentals (Netflix, Inc., 2011). The company has since diversified its lines of services and now provides its services in other areas such as television streaming.
The price increase by 60% is justified due to possible increase in the operation cost. However, the company can only retain its customers if it improves the efficiency of its services to both existing and potential customers. It can also retain and increase its customer base by handling customer issues to their satisfaction (Engelbrecht, 2007).
Ball, M. & Seidman, D. (2011). Supply and Demand. New York: The Rosen Publishing Group.
Engelbrecht, E. (2007). Customer Service Management: a holistic approach. South Africa: New Africa Books.
Netflix, Inc. (2011). Netflix Revolutionizes the Way People Watch Movies. Retrieved from https://signup.netflix.com/MediaCenter.
Pride, W. & Ferrel, O. (2010). Foundations of Marketing. New York: Cengage Learning.