Case Study - 1

Netflix's Pricing Strategies to Arrest Falling Subscriber Num-

bers

Abstract

The case “Netflix’s Pricing Strategies to Arrest Falling Subscriber Numbers” talks about the various
new pricing strategies that leading global streaming giant Netflix, Inc. was contemplating introduc-
ing to arrest the rising number of service cancellations among its subscribers. The case explores how
Netflix had always been abreast of the ever-changing customer preferences in the home entertain-
ment space and had changed its business model accordingly to serve customers, thereby emerging a
winner each time. In the late 2010s, Netflix was faced with a new set of challenges. It was experienc-
ing a fall in subscriber numbers and, consequently revenues, due to a gamut of reasons. Besides, its
investment costs were also high due to the focus on content creation that it had undertaken to retain
customers. Netflix was considering introducing a host of new pricing strategies – to earn revenues,
retain customers, and compete effectively – thereby bringing in a change in its business model again.
So, will Netflix again successfully change its business model to emerge a winner?

The case is structured to achieve the following teaching objectives:

• Understand the key components of a business model.

• Analyse the circumstances that lead to the reinvention of business models.
• Examine the various pricing strategies and their business effectiveness.
• Identify the impact of new pricing strategies on business prospects.

Contents

Introduction
Netflix and its Changing Business Models
The Change in Scenario
A Change in Direction
Exhibits

Introduction:

Netflix is a leading streaming service provider in the world. Founded in 1997, it offers a wide range
of television shows, movies, and documentaries for viewers to stream online. The platform has
gained immense popularity over the years, but the company has been struggling with declining sub-
scriber numbers in recent years. To arrest this decline, Netflix has implemented several pricing
strategies, which we will discuss in this case study.

Pricing Strategies Implemented by Netflix:

Tiered Pricing: Netflix has implemented tiered pricing in different regions around the world. This
strategy allows users to choose from different subscription plans that offer varying levels of features
and benefits.
For example, in the US, Netflix offers three subscription plans: Basic, Standard, and Premium.
The Basic plan offers standard definition streaming on one screen at a time, the Standard plan of -
fers high-definition streaming on two screens simultaneously, and the Premium plan offers 4K Ul-
tra HD streaming on up to four screens at the same time.

Increasing Prices: In recent years, Netflix has increased its subscription prices several times. The
company argues that these increases are necessary to invest in more original content and improve
the streaming experience for users. However, some customers have complained about these in-
creases, and some have even cancelled their subscriptions as a result.

Partnership Deals: Netflix has partnered with several telecommunication and cable companies to
offer discounted subscriptions to their customers. For example, in India, Netflix has partnered with
Airtel, Vodafone, and other telecom operators to offer its services to their customers at discounted
prices.

Free Trials: Netflix offers free trials to new users in some regions. This strategy allows potential
customers to try out the service before committing to a subscription. The company hopes that this
will convince users to subscribe to their service in the long run.

Netflix and its Changing Business Models

Netflix has gone through several significant changes in its business model over the years. Here are
some of the major changes that have occurred:

1. From DVD-by-mail to Online Streaming: When Netflix first started, its primary business
model was renting DVDs by mail. However, with the rise of online streaming, Netflix
shifted its focus to online streaming, and now it's the company's primary business model.

2. Expansion to Original Content: In addition to licensing content from studios, Netflix started
producing its own original content, such as "House of Cards" and "Stranger Things." This
allowed Netflix to differentiate itself from competitors and provide exclusive content to its
subscribers.

3. Global Expansion: Netflix initially started its service in the United States, but it has since
expanded its services globally. This has allowed Netflix to tap into new markets and in-
crease its customer base.

4. Focus on Personalisation: Netflix has increasingly focused on personalisation, using algo-

rithms to recommend content based on a user's viewing history and preferences. This has
helped to increase customer engagement and retention.

5. Emphasis on Mobile: With the growing popularity of mobile devices, Netflix has placed an
increased emphasis on mobile, with the development of a mobile app and the ability to
download content for offline viewing.
Overall, these changes have allowed Netflix to adapt to changing market conditions and stay com-
petitive in the streaming industry. By diversifying its offerings, expanding globally, and focusing on
personalisation and mobile, Netflix has been able to attract and retain subscribers in an increasingly
crowded market.

The Change in Scenario of Netflix

The scenario for Netflix has changed significantly over the years since its inception. Here are some
of the notable changes in the company's scenario:

1. Increased Competition: One of the most significant changes in the scenario for Netflix has
been the rise of competition in the streaming market. Companies like Amazon Prime Video,
Hulu, and Disney+ have entered the market, and traditional TV networks have launched their
own streaming services. This has made it more challenging for Netflix to retain subscribers
and stand out in a crowded market.

2. Shift to Original Content: To differentiate itself from competitors, Netflix has increasingly
focused on producing original content. This has been a significant change in the scenario, as
the company now spends billions of dollars on producing original series and movies.

3. International Expansion: Netflix has expanded its services globally, which has presented new
opportunities and challenges. The company has had to navigate different cultures, languages,
and regulations in different countries.

4. Evolving Consumer Preferences: Consumer preferences have also evolved, with more people
watching content on mobile devices and expecting a more personalised experience. Netflix
has had to adapt to these changes by developing a mobile app and investing in personalisa-
tion algorithms.

5. Financial Performance: As a result of these changes, Netflix's financial performance has fluc-
tuated over the years. While the company has seen significant growth in revenue and sub-
scribers, it has also faced challenges such as rising content costs and increasing debt.

Overall, the scenario for Netflix has become more complex and competitive over the years. How-
ever, the company has also continued to innovate and evolve its offerings to stay ahead of the curve.
A Change in Direction

Netflix has made several changes in direction over the years as it has adapted to changes in the
market and the evolving preferences of its customers. Here are some of the notable changes in
direction that the company has made:

1. Focus on Original Content: One of the most significant changes in direction for Netflix
has been the company's increasing focus on producing original content. This has allowed
Netflix to differentiate itself from competitors and provide exclusive content to its sub-
scribers. It has also helped the company to control costs and reduce its reliance on content
from studios

2. Shift to Streaming: Another significant change in direction for Netflix was the company's
decision to shift its focus from renting DVDs by mail to online streaming. This decision
has proven to be a wise one, as online streaming has become the dominant mode of con-
tent consumption in the modern era.

3. Expansion to Global Markets: Netflix has also changed direction by expanding its ser-
vices globally. This has allowed the company to tap into new markets and increase its
customer base. It has also presented challenges, such as navigating different cultures and
languages.

4. Emphasis on Personalisation: With the increasing importance of personalisation in the

modern era, Netflix has shifted its direction to focus on providing a personalised experi-
ence for its customers. The company uses algorithms to recommend content based on a
user's viewing history and preferences.

5. Diversification: In recent years, Netflix has diversified its offerings beyond just streaming
movies and TV shows. The company has started to produce original documentaries and
stand-up comedy specials, as well as branching out into interactive content such as "Black
Mirror: Bandersnatch.”

Overall, these changes in direction have allowed Netflix to stay competitive and relevant in an
increasingly crowded market. By adapting to changes in the market and the preferences of its
customers, Netflix has been able to continue to grow and evolve over the years.
Exhibits of Netflix

1. Original Content: Netflix has produced a range of critically acclaimed and popular original
series and films, including "Stranger Things," "The Crown," "Orange is the New Black," and
"The Irishman.”

2. Subscriber Growth: Netflix has experienced significant subscriber growth over the years,
with over 200 million subscribers as of 2021.

3. Revenue Growth: Netflix's revenue has also grown substantially, with over $25 billion in
revenue in 2020.

4. Award Wins: Netflix has won numerous awards for its original content, including multiple
Emmy Awards and Academy Awards.

5. Global Reach: Netflix has expanded its services to over 190 countries, making it a truly
global company.

6. Personalisation Algorithms: Netflix uses sophisticated algorithms to recommend content to

its users based on their viewing history and preferences.

7. Mobile App: Netflix has developed a mobile app that allows users to watch content on the
go, as well as download content for offline viewing.

8. Environmental Sustainability: Netflix has committed to being carbon neutral by 2022 and
reducing its greenhouse gas emissions by 45% by 2030.