1. Business Ideas
  2. Business Plans
  3. Startup Basics
  4. Startup Funding
  5. Franchising
  6. Success Stories
  7. Entrepreneurs
  1. Sales & Marketing
  2. Finances
  3. Your Team
  4. Technology
  5. Social Media
  6. Security
  1. Get the Job
  2. Get Ahead
  3. Office Life
  4. Work-Life Balance
  5. Home Office
  1. Leadership
  2. Women in Business
  3. Managing
  4. Strategy
  5. Personal Growth
  1. HR Solutions
  2. Financial Solutions
  3. Marketing Solutions
  4. Security Solutions
  5. Retail Solutions
  6. SMB Solutions
Product and service reviews are conducted independently by our editorial team, but we sometimes make money when you click on links. Learn more.

Netflix Pricing Offers Economics Lesson for Small Business

Netflix Pricing Offers Economics Lesson for Small Business Credit: Brandon Alms | Dreamstime.com

The much publicized — and by some, vilified — decision by Netflix to change its pricing structure is taking effect this month and the response from consumers will impact the way many businesses handle their pricing structures and changes from now on.

The new pricing changes will break Netflix services into an unlimited DVD plan for $7.99 a month and an unlimited streaming plan for $7.99 a month, instead of the current $9.99 a month plan for unlimited streaming and DVD rentals. 

Experts say Netflix's revamping of its pricing structure and the way the company handled the communication surrounding the change offers lessons for all business owners.

"With their large client base, Netflix is basically exercising price discrimination," said Della Lee Sue, assistant professor of economics at Marist College. "They are basically separating the one market into two markets knowing what the market will bear, so they can increase their own revenues."

"In some sense, the case of Netflix can be a motivation to small businesses to develop something unique, or a niche in your market and form your client base from there,"  said Sue.  "That gives you the corporate freedom to raise prices.  In economics, if you can develop a uniqueness, your customers will not be as price sensitive. They will be relatively price inelastic, and then you are able to raise price without losing many customers." 

Despite the best planning, any time change is involved, there is a potential to lose customers. However, there is a simple way to combat this, Sue said.

"If they can convince their customers that they are offering a quality service, that will often reinforce the demand," she said.  "When customers are angered or annoyed, they are not going to want to buy. Businesses may be able to keep customers or increase demand through their quality."