Friday, July 15, 2011

Netflix fully expected huge consumer backlash over pricing changes

If you were wondering if Netflix went into their recent announcement of a price change ... splitting DVD from streaming, thus making a combined unlimited DVD + streaming subscription cost $15.98 instead of $9.99 ... with blinders on, the answer is no. The company fully expected the negative backlash it has received.

The change, effective immediately for new customers, and on Sept. 1 for existing customers, eliminates the $9.99 unlimited (one dvd out at a time) DVD + unlimited streaming plan. Instead, there will be a $7.99 unlimited (one dvd out at a time) DVD plan, and a $7.99 unlimited streaming plan, and never the twain shall meet. The change was first announced on Tuesday.

So many customers have been calling in to Netflix to complain, or even to cancel, that despite the fact that Netflix added extra CSRs to help handle the expected flood of calls, customers were having to wait an extended period of time before speaking to anyone.

BTIG analyst Rich Greenfield conducted his own test. He called Netflix customer service 35 times over two hours, and said that his wait was typically between 9 and 15 minutes. In the report issued Wednesday, he noted that the company didn't seem concerned with a potential loss of customers.

Greenfield wrote, "There was simply no promo or 'save' technique to offer us a discount to retain our business. This would appear to illustrate that Netflix is simply not concerned with the prospect of losing customers." It was already pretty clear that Netflix wouldn't offer a "grandfather" deal. If they were planning to offer any such deal, they would have offered it from the very start.

Instead, the only advantage existing subscribers have is that they have the $9.99 combined plan for 1 1/2 more months.

Do we think anything will change? Probably not. If there was some sort of rival that could jump on this problem, then maybe they would be more concerned. Additionally, the streaming selection is pretty poor, so they (Netflix) might assume most people would opt for DVD only, at least until the streaming service improves.

On the other hand, considering Amazon.com has opened up its Amazon Prime users to free Instant Streaming, this could be a good way for the company to make some headway, if they were to open up video rentals as well. The online retailer does sell DVDs, but has never rented them.

Alibris


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