Netflix Continues To Change The Face Of In-Home Movies Around The Globe Case Solution

2. Analysis

The first concept that comes into the mind when reading this case is that of the four P’s of marketing. In the concept of four P’s, McCarthy mentions how pricing is a very important part of a product and its overall message that is delivered to the customer. Price regulates what kind of perception a consumer will have about a product. It depends upon the perceived value of the product by the customer (Perreault, Cannon, & McCarthy, 2013).

In the case of Netflix, the product was designed for convenience. Therefore, all the marketing elements associated with it were directed towards achieving a common goal; provide entertainment to the customer at his convenience and comfort. Price was at a premium but also not so high that the people cannot afford it. As Netflix suddenly changed its pricing strategy, increasing up to 60% of subscription, it hit the element which its product was primarily targeting for the customers; convenience (Chaffey, Ellis-Chadwick, Mayer, & Johnston, 2009). That shock shattered the whole point of the service (Hawkins & Mothersbaugh, 2016).

If this strategy was really that necessary then Netflix should have included a ‘customer enhancement’ aspect to it so that the consumers are able to make ‘value assessments’ by equating delivered features with the price increase (Hawkins & Mothersbaugh, 2016). Things went wrong when it did not do that and customer’s frustration got fueled more. Prediction for Netflix is that they will lose more than 2 million subscribers because of this move. Having said that, now there are several strategic ways for Netflix to regain and increase its revenue.

3. Solution

If we approach this case in the context of SWOT analysis (Helms & Nixon, 2010)of current position of Netflix, we shall find that its core strengths lie in; online movies, unlimited rental for movies, no due dates and no late fees. Weaknesses that can damage it are that it delivers older movies and, of course, this drastic increase in price has become a severe weakness in this case. Opportunities Netflix has the new markets around the globe that are approachable to them and that it shows latest movies which would make consumers more prone to purchasing its service. Threat is the competitors that are swiftly moving in on its market share when it increased its price.

Among the alternatives of opportunities available to Netflix, the prospect of acquiring new movies for rental services seems to be a much less profitable option as it will not generate much income for the brand, however, it can sooth the customers’ anger towards Netflix. The other and most viable option for Netflix now is to expand its services worldwide and generate revenues from a large global market to counter the losses incurred through this move.

4. Justification

According to a survey by Philip Parker, the global market potential for digital movie delivery is enormous in various regions of the world. Asia, being the most populous, has the highest market share. Followed by Europe and North America (Hawkins & Mothersbaugh, 2016). Asia is a huge market, apart from being the largest in terms of population as the entertainment consumers here, particularly the virtual shoppers, upscale clicks and bricks and status strivers segments, are very highly influenced by the west and they have disposable income to get them make the purchase (De Mooij, 2010). These segments can be targeted through positioning Netflix in fashionable style or the choice of the west. This shall make the consumers less prone to be threatened by the high price of Netflix in Asian countries and create a trendy demand for the product.

The European markets are, on the other hand, very similar to the United States which leads to a completely different attraction point for Netflix; it has to do very little localization so it can continue following the same strategies that it used in the U.S (Rifkin, 2013). Along with using this expansion strategy, Netflix should include another service for its customers; maybe include latest movies in its database so that it can counter the negative effects of its price increase and get the customers confidence back again. 

5. Summary

Netflix is the market leader in-home movie market in U.S. It currently has 25% penetration and there is still a lot of room for growth. This case explains a strategic move by Netflix to separate its subscriptions which created a lot of revenues for the company but, on the other hand, angered its customers as it meant a 60% price increase on their two subscriptions. The case mentions that the management of Netflix reacted quite calmly towards this public reaction and they are confident that their expansion will pay off the losses they will incur by angering their customers. 

6. Chapter 10 discusses how consumers cope with product and service encounters including product and services failures. Describe in what sense Netflix’s change in pricing strategy could be seen as a product or services failure and the coping strategies that their customers appear to be utilizing. 

At the heart of Netflix’s essence was the concept of convenience that the management at Netflix seemed to understand very well (Richards, 2016). That convenience was not only limited to delivering videos and DVDs to the doorstep of a person but it also had financial convenience as a critical part of it (Welter, 2012).

As their subscription strategy changed drastically, a crucial part of its product; the price, became an inconvenience for the people who were previously sold on this particular idea. Making the product fail as a core component of its essence got destroyed (Milgrom & Roberts, 1986). Resultantly, to cope with this set back, its customers are trying; ‘active coping’ by making the best of the situation, ‘expressive support seeking’ by expressing their frustration on social networking platforms and ‘avoidance’ by completely ignoring the situation. 

7. What factors do you feel contributed to customers’ high levels of anger towards Netflix’s new pricing policy? How might Netflix have handled this situation better? Explain

Netflix changed the prices so drastically and so suddenly, it seemed that they did not even bother with customers’ opinion of them resulting in failure to meet customers’ need for attribution and assertion and created a negativity bias towards them. This contributed to the customers’ anger towards Netflix’s pricing strategy (Kwong & Park, 2008).