Netfilx just raised their prices by 11%, and I’m glad they did.
I had been subscribing to the 1 DVD at a time, Unlimited Streaming plan for $8.99 a month. I’ve also never used the DVD part of the service– streaming-only (via Boxee and the Netflix iPhone app) for this nerd. This month, Netflix is raising the subscription for that plan to $9.99. An 11% increase. That part, I wasn’t too psyched about. What go me was that Netflix now offers a streaming-only plan for $7.99. Which is 11% less than I had been paying, and it gives me what I actually wanted when I signed up.
Depending on Netflix’s (Netflix’? Netflixs’? How do you do possessive on that name?!). Anyway, depending on bandwidth and licensing costs, the streaming-only plan is probably much more profitable: old expenses are replaced with new (cheaper) ones. Shipping is replaced by bandwidth; physical medium costs (DVDs, those little envelopes, etc) are eliminated; warehouse and inventory are replaced with IT geeks and servers.
If they did it right– and they probably did– my price went down, but their margins went up. This is a great example of Blue Ocean Strategy: increase the benefit, decrease the price.
How do you handle your price increases? Do you just raise them every year without adding benefit? Do you cut them without increasing your margin?