A Surprising Lesson from Netflix
This Post Originally Appeared on Residential Systems on October 17, 2017
Existing Netflix customers are up in arms about a $1 price increase. Here’s the important lesson you can apply to your business.
Last week, Netflix announced that the price of their standard streaming plan will increase by $1 starting in November. This move will raise the price from $9.99 to $10.99 a month. The price of their premium tier will also rise from $11.99 to $13.99. Netflix claims that the increases are appropriate given the company’s expanded content offerings, namely original programming.
Though it may seem like a simple story of customers always wanting more for less, there is an interesting lesson that integrators can glean from customer reactions to the pricing changes by the streaming media giant.
Battling Preconceived Notions
Even at the new price levels, Netflix is still an unquestionable value. Yet, many existing Netflix customers are up in arms about the changes, some of them apparently even opting to cancel their subscriptions. This, according to a letter to shareholders written by Reed Hastings, the company’s CEO. In his letter, Hastings details an “unexpected” loss in subscribers following the latest in a series of incremental price increases which started back to May of 2014. Hastings states, “Whatever the price is for something, people don’t like for it to go up.”
The sustainability of your business and quality of your service should not be hamstrung simply to preserve the status quo.
Interestingly enough, Netflix’s new tiered pricing model doesn’t seem to be putting off new customers from signing up. In his letter, Hastings goes on to explain that the new pricing tiers were “working great” for new Netflix members. In other words, the resistance the company is encountering to its new pricing model does not appear related to the perceived value they are providing to the market at large. Rather, this looks like nothing more than legacy clients holding onto a preconceived notion of what they believe the service should cost.
You can bet that Netflix knew exactly how their legacy clients would react. In fact, I’m willing to wager that forecasts of subscriber attrition were predicted with excruciating precision. However, the company knew that it needed to make the change for both the long term health of their company and to continue improving their customer experience through increased programming offerings. So they forged ahead.
Keep Looking Forward The parallels to our industry’s efforts to monetize premium services are striking. I hear a similar refrain from integrators all over the country:
“I can’t charge for that”
“I’ve been doing that for free for years”
“My clients will never pay”
The problem is that each one of these statements reflects a hesitancy to change forward-looking policies based on backward-looking expectations. Sure, the transition from free to paid services for existing clients requires finesse. However, you should not let that prevent you from making a policy change designed to bolster your company’s sustainability and improve your client experience.
Existing clients will always push back on changes they believe will cost them more money. But, most will stay, and future clients, who do not have preconceived notions, are very likely to adopt premium service offerings if presented correctly. If, instead, you chose not to put such offerings on the table for fear of how your previous clients might react, you are doing both your business and your future clients a great disservice.
Make Your Move
Pricing changes are never easy. However, given how dynamic our industry is, taking a rigid policy stances is a great way to become a “Day 2” company. As home technology products commoditize at an increasing pace and the demand for around-the-clock service continues to increase, now is the time to be agile and experiment.
This could mean something as simple as adjusting your warranty coverage or raising your hourly service rates. Or it could mean revamping your service program to offer premium services to clients who value offerings such as prioritized on-site support and proactive system monitoring. The specifics will depend on your business. The broader point is that the sustainability of your business and quality of your service should not be hamstrung simply to preserve the status quo.
It goes without saying that your existing client base is a precious asset and that any decision you make must be weighed against how it will impact them. But even very large, well-established companies like Netflix understand that to continue advancing their products and services, policies have to change from time to time. As the Netflix story illustrates, upsetting a few existing clients may become a necessary evil from time to time. But like Netflix, you should source your conviction from the fact that these changes are designed both to bolster the health of your business and to provide a superior experience to all of your clients moving forward.
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