Q1: To price increase or not? What’s your recommendation to Netflix and why?

I recommend that Netflix keeps increasing their prices to support content growth that will in
turn increase customer retention rates and will help it compete with other platforms.

Firstly, Netflix is currently facing competition primarily in terms of content, rather than
pricing. Thus, if they choose to increase the range of their content, especially original
content, they are likely to still retail the vast majority of customers. Thus, they should follow
Amazon Prime and continue adjusting their prices to ensure a sufficient supply of quality
content to its customers. As market research suggests that customers tend to pick one
platform to subscribe to, Netflix should ensure that its lead in terms of brand awareness and
consumer popularity according to Exhibit 11. Netflix should maintain a broad variety of
genres and languages to appeal to a larger segment population to compete with newcomers
like Disney Plus, which offers a relatively limited range of options. Furthermore, Netflix can
attract consumers that are switching from cable TV to online streaming and entice them to
pay a marginally higher price for an online subscription, which is still lower than what they
would have had to pay for cable.

Secondly, the strategy of increasing prices has worked for Netflix so far, and Exhibit 12
indicates that the share of consumers that are willing to pay even more for a subscription is
relatively high and has an increasing trend year on year. Moreover, retention rates after a
price increase are quite high. While 40% of consumers had indicated that they would cancel
their subscription following a price increase, only 3-4% actually went through with the
cancellation. Furthermore, about half of the consumers that had cancelled the subscription
actually renewed it within a year following cancellation.

Q2: What are the relative strengths of each of Netflix’s competitors?

Disney+ offers a huge variety of films but only of a specific genre. This strategy is relatively
popular with customers that have an existing interest in that specific genre. However,
arguably, the platform will eventually hit its growth potential because it does not create
new content of different genres to attract a diverse customer base. However, Disney+ offers
discounts to users of other subscription services, like Hulu, so althea it cannot compete with
Netflix in terms of the variety of genre offering, it still gives consumers the ability to watch
other genres as well.

Apple TV utilises a freemium model by offering free streaming for a year to any consumer
that also purchases any Apple product. This strategy could potentially be quite effective at
gaining new customers that either aren’t affiliated to any subscription service yet, or to
those that wish to leverage the free offering. As a newcomer, Apple TV cannot boast of
much original content, however, they have been rapidly growing their content since
inception, and have employed many well-known celebrities in their quest for views.

Amazon Prime uses a cross-selling strategy by leveraging an existing and strong platform of
150 million users to boost its streaming rates. Amazon can also use existing customer
information to make more precise and relevant film recommendations to long-time
consumers, which is a relative strength compared to Netflix. Furthermore, Amazon has
more capital on hand, so it can afford to minimise the subscription price to get rid of its
main competition.

NBC streams reality tv series and comedy that are widely popular in certain markets and are
available exclusively on the service. HBO has the greatest catalogue of films that are
available for streaming, it also offers some fan-favourite series classics, like Game of
Thrones. Hulu offers very quick access to content after it has been aired.