5 Things to Consider When Raising Prices
a) Your most profitable customers may not be the biggest, but they are buying the services and products that make you the most money. It seems that Netflix looked at this and raised prices accordingly—so as not to tick off profitable customers, but instead tick off its lower end customers. At least it appears that’s what the company is doing out of the gate.
b) Have a plan for the top 20 percent of your customer base that generates 80 percent of your revenue. My guess is that Netflix looked into this and priced its lower end services knowing it would lose those customers.
c) Be careful not to tick off your loyal customers. Word of mouth and social networking sites can make or break you. In my opinion, Netflix has the biggest issue here. It had a very loyal customer base within the 22.8 million subscribers. Customers who have been with the service since day one feel betrayed; they feel the company is jacking up profits and no longer cares about the customer. These customers are magnifying their dissatisfaction across the Internet. I believe Netflix could have explained its reasons for the pricing strategy change better, but what do I know. I’m not a movie guy!
3) Don’t underestimate word of mouth.
Customers will share with others. Have a strategy for communicating to everyone and letting them know what is going on. It may not be a popular decision, but by showing the value-add and how you are justifying the higher prices, customers hopefully will understand. Have a public relations plan in place whether you are a small, $1 million shop or multimillion shop.
Netflix is being hammered right now across Facebook and Twitter, and hoping it can weather this storm. Assume that customers will notice the price increase and be proactive explaining the reason for them. Be visible with a consistent message.