In April of 2014, Netflix made the daring but necessary choice to increase subscription fees for new members. A combination of stagnant membership numbers and the increasing cost of content production and licensing made the Netflix corporate leadership nervous – and a price increase seemed necessary to keep the brand profitable and strong.

Even though the proposed price increase was small, Netflix was reluctant since its last price increase was met with extraordinarily bad publicity and outrage from customers. Netflix was able to raise its prices in April without the same kind of outrage that its earlier price increase met with – but why? What did Netflix do differently in this latest price increase that its stock price increased and customers actually voiced their satisfaction rather than anger?

The Perfect Streaming Storm When Netflix tried to raise its prices back in 2011, it did so during the single worst year the company experienced. Netflix had declining subscriber numbers and to compensate Netflix decided to raise monthly subscription fees. The company communicated to customers via email that subscription fees were going up a few dollars – approximately a 60 percent increase.

Simultaneously, the company was ditching its DVD rental business to focus exclusively on streaming. Subscribers had to choose between completely losing their DVD rental service (and still having to pay more for streaming than they had previously paid for streaming AND DVD rental), or paying two separate services and losing their ability to track recommendations across different forms of media.

Customers were outraged, and rightly so. Netflix expected customers to pay more for a less-flexible service, so they simply couldn’t show customers why they should have to pay the increase. The company lost about 800,000 customers within a few months, Netflix’s stock plunged more than 80 percent, and the company received extensive negative media coverage about the debacle.

Ups and Downs of Subscriber Models While there are benefits of monthly subscriber programs, there are also challenges that companies need to consider from a public relations perspective. Raising prices with a monthly program has a greater communication impact than annual subscription models, even if the amount is the same. Many Netflix customers left for services like Amazon Prime where they would only have a one-time annual fee and if prices increased it wouldn’t feel as severe.

The monthly option also makes it easy for customers could easily opt-out of the monthly service and move to other options. In 2011, there wasn’t as much differentiation in there product as today and many customers could easily switch to competing services like Hulu where they could get many of the same offerings.

Netflix had learned the hard way that monthly subscriber options face their own communication challenges, which need to be considered when making customer- or public-facing announcements.

Learning from Past Mistakes In its recent price increase, Netflix was much smarter . The company surveyed new and prospective members to learn from its mistakes in 2011 and figure out how much of a price increase the customers would tolerate without leaving the service. Netflix’s research showed that current customers would accept a $1 or $2 price increase pending on the tier of service, and new customers indicated they are more likely to agree to a higher rate upon beginning a service than having their rate raised during the service.

With this year’s price increase communication, new customers will have to start paying the higher $9 monthly rate and existing American customers were notified of the price increase but get to stay at the current price for two years before going up. This gives customers ample time to arrange their budgets and cutting expenses as needed elsewhere.

The research and planning paid off for Netflix. Despite the fact that the news was negative in nature, the communication was transparent and the company received positive remarks from customers and media covered the news favorably.

About The Author

Jeremy is a PR Pro at PressFriendly and is currently living somewhere in northern not-san-francisco.

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