Netflix Is Making A Basic Marketing Error That Can Cause Huge Long-Term Problems
I cannot believe that we are in 2022 and a huge company like Netflix fails to understand the BASICS of marketing. What is happening right now is basic and you learn it in college. Hell… you learn it from reading articles on the internet written by students.
Simply put: you do not raise prices when you are losing customers!
This only has one possible outcome. You lose more customers.
What Is Happening?
For some time now, Netflix kept saying that it will raise prices. People have been complaining about it but why listen to your customers? The price hike is happening. As a result, Netflix is set to lose up to 25% of its US subscribers.
Netflix Subscription Price Increase
According to a survey by Reviews.org, 25% of Americans surveyed said they are leaving Netflix. This could bring a loss of $272 million. And this is substantial since the US is the biggest market for the streaming platform.
The main reasons why people leave Netflix are:
- Rising cost of subscription — 40.49%
- Missing titles on the platform — 21.69%
- Increasing costs of general expenses due to inflation — 19.58%
- Using other streaming services more often — 18.25%
For reference purposes, the average monthly costs for the main streaming services are:
Basically, the survey shows us that people are leaving Netflix because there is a subscription price increase, they do not find what they are looking for, they cannot afford it anymore, or they like another service better.
The Solution Netflix Came Up With
This is a positive for sure as Netflix will launch an ad-supported tier for a lower cost. It is a good solution that was already proven effective by Hulu, which did the same thing and ended up with a pretty big revenue increase.
The solution is meant to stop people from leaving the network. So, why not stop MORE from leaving by not increasing prices? Does this make sense? For regular people, No. For money-hungry corporations, Yes (more on that later).
Some Things To Be Aware Of
Before talking about why the Netflix price increase does not make sense and why this will actually lead to losing money, it is important to mention a few things.
The Pandemic Boom
Every single quarter since Netflix was launched, it gained subscribers, until Q1 2022. Basically, this year Netflix started to lose subscribers. This is completely normal and it is something that everyone anticipated or should have anticipated.
The 2020 Pandemic helped increase the number of subscribers. People had to stay home and they needed entertainment. So, they did join more subscription services, especially since they had more money available as they did not go out.
It is completely normal to expect that some of these new subscribers or even most of them will disappear. They will get back to the life they had before the pandemic or they will use another service.
There are so many streaming services these days that it makes zero sense to expect someone will subscribe to all of them. Netflix is feeling the competition and it is not reacting that great. Competition is always great for the market but not necessarily for the companies in that market.
Netflix obviously feels the pressure. HBO Max launched House Of The Dragon, which will most likely be a success, and smaller streaming services like Disney+ and Peacock keep growing.
Netflix is filled with controversies. Many Many Many. The streamer is heavily criticized. Nothing new here. But, what some do not know yet is there are some scandals that are not heavily publicized so few people know about them.
For instance, a Netflix Production Company was asking photographers to work for free for them. Netflix made a profit of $5.1 billion in 2021. $5.1 billion. Profit. And they cannot afford to pay a photographer? No. They do not want to pay a photographer. And this is a practice that happens in several parts of the business model Netflix has. There are several reports about not paying or seriously underpaying. You can find them if you look hard enough.
Netflix is NOT an NGO. It is a billion-dollar company.
As more and more people learn about these problems, more subscribers will be lost. As simple as that.
New Netflix Content Is Bad
I do not have to dig too dip into this one. It is enough to look at the most watched Netflix shows in 2022:
Except “Stranger Things”, how many do you know? 2021 had “Squid Game”, “Lupin”, “Money Heist”, and more.
So, Netflix’s original content is getting worse and worse. And the company seems to be focused on quantity instead of quality. When you keep finding bad shows on the streaming service you use, you will leave.
Why The Price Increase Does Not Make Sense
The reason why I mentioned some things to be aware of in the above paragraphs is to show that Netflix is faced with problems. And more and more problems appear as those problems are improperly managed. Netflix content is getting worse, more scandals appear, and so on. And Netflix does not get it that all these little things eventually add up to a big problem.
I am mentioning this first because it is what dictates this horrible decision Netflix made to increase subscription prices. What is happening with the streaming service is not new. We have been seeing this for a long time.
Just as a small example, the WWE during the pandemic decided to fire staff and on-air talent even if it was generating RECORD profits. They fired people during a pandemic and generated more profit. This happened because of the same reason why Netflix is moving towards serious problems: corporate greed.
Netflix is a huge corporation with 2021 revenues of $29.7 billion. It is the second largest media/entertainment company right now by market capitalization. Netflix shares are $245.20 as I am writing this article.
What do shareholders want? Money. More money.
How do the shareholders want to get more money? They do not care!
There is a very good possibility that this subscription price increase combined with the new ad-supported tier launch will lead to higher profits for Netflix. So, the shareholders will be happy since they only care about their money.
But this does not work in the long run.
Losing Customers Is A Big Thing
Profits can go up but losing customers is more important in business than you might think. When you lose a customer, it will be much harder to get them back. Much harder.
Just think about how you spend your money. Let’s say you have a favorite coffee shop. Because they now sell their coffee at a higher price and you do not think it is worth it, you go to another coffee shop. Be honest with yourself and think how likely it is that you will go back to that initial coffee shop you loved.
And let’s take it a little further and look at things from the coffee shop’s point of view. The business lost some income and the past couple of months were not that great. The solution? Make coffee more expensive because this will give the coffee shop more money. Does this work? No! Initially, it might lead to a little bit of a cash increase that might make it seem like a good solution but after some time, the business ends up with higher losses since customers do not come back.
The same thing would happen with a streaming service like Netflix. It would take a VERY good show to get the subscriber back. And they would most likely only pay for the duration of that show.
Basically, losing customers, especially because of something like price hikes hurts the brand. When brand reputation goes down, it is hard to get it back.
The Incredibly Simple Better Solution
As a marketer working at Netflix or to promote Netflix (I do not know if they have an internal department or they outsource this), it is impossible not to have predicted the loss of customers. You have more competition and the pandemic is over. It is enough to predict the loss of customers.
So, you come up with the solution of the ad-supported price tier. THIS IS ENOUGH!
You do not need something else. You do not need to increase subscription prices. You already have a solution that will increase your income. Will it be enough? Market research can help you to answer this question but even if it is not enough, you do mitigate a part of the income loss and, more importantly, you do not damage your brand. The price increase instantly damages the brand.
Most likely, Netflix shares will go up and profit will go up after November because of that ad-supported tier. But, the brand is already damaged. And the competition is quickly growing. It is producing better shows and makes better business decisions.
Netflix was launched in 1997. It now has around 225 million subscribers. Disney+ was launched in 2019. It now has 130 million subscribers. Prime Video was launched in 2006. It has around 205 million subscribers.
Netflix is feeling the pressure and it is the shareholders that dictate the changes. As more and more bad shows appear on the platform and more scandals appear (this is inevitable as people are starting to talk about these things as opposed to ignoring them), more subscribers will be lost.
Ultimately, a simple choice as increasing subscription price due to greed (Netflix made a profit of $5.1 billion in 2021) could lead to losing much more in the future. But, the management team will make more money until then. And when the problems become serious, the solution will be to change the management team, which is not a problem since these people already got their bonuses. This is the corporate world and this is not understanding or ignoring the basics of doing business.