Pride Before The Fall: The Netflix Case

Netflix began as a DVD rental business. For a monthly fee, you could borrow as many DVDs as
you liked. They would arrive by mail, and you would return them also by mail when you were
done. With this innovative business model, Netflix helped drive the huge DVD rental chain
Blockbuster, which had thousands of stores nationwide, into bankruptcy in 2009. Gradually,
Netflix began to evolve into a movie streaming service, and kept its simple price model of a low
monthly subscription fee intact. From 2010 onward, the company was a true online star,
boasting 25 million customers by the summer of 2011 and facing virtually no competition.
That such a successful company can fall victim to pride is no surprise. On July 12, 2011, Netflix
announced a price increase of 60% and attributed it to a sharp increase in its licensing costs.
Those licensing costs, however, did not interest Netflix customers one bit. They responded
negatively, though the company’s net loss of customers was not so large in percentage terms.
Investors were much less tolerant. They roughed up the company even more, causing the share
price to plummet by around 75% over the ensuing three months. Netflix’s market capitalization,
which once topped $16 billion, eventually fell below $5 billion. Content suppliers cancelled their
license agreements. A weaker Netflix also became vulnerable to stepped-up attacks from
Amazon and Apple. The moral: one should avoid arrogance in pricing, especially after a run of
enviable
success.
Answer the following questions: (2 items x 10 points)
1. What is the pricing problem present in the case?
The pricing issue presented in the Netflix case started as a DVD rental business. Netflix with a
dream to give a home film administration that would make a preferable showing fulfilling client
over the conventional retail rental model. Yet, as it supported difficulties it went through a few
significant techniques moves eventually fostering a plan of action and a functional system and
that were exceptionally troublesome to retail DVD rental chains

2. What is the appropriate pricing model which could have helped Netflix avoid the given pricing
problem?

since this valuing model is a blend of the two free and premium in this value procedure a client can
either get a fundamental variant of an assistance for nothing or buy in premium adaptation of the help.
Netflix a worth to its client is its great substance. Netflix reported a cost increment of 60% and ascribed
to a sharp expansion in its authorizing costs with a basic bundling and three memberships (essential,
standard and premium) you can get the spilling of all the accessible series film and shows accessible on
the Netflix library