It is a no news that Neflix is raising prices. The US company is raising prices by 60% for customers that watch films and TV shows both online and via mail order system DVD . Before now, with $9.99 a customer could get the DVD and enjoy unlimited online streaming. But no more. Netflix has a new plan.
They have unbundled the two services and customers will pay $7.99 for each. The goal here is to raise revenue to re-sign some of their expiring deals, expand the business abroad, acquire new content, and of course work on the all important contracts of dealing with the content owners like Sony, Disney, etc.
While everyone should look at this as purely a way to generate more revenue, Tekedia sees one huge lesson this must teach companies and entrepreneurs. If you lead your sector or industry, you can raise prices and still not lose many customers. The top companies in their industries have price power. But if you are not at the top, a small change in your price could cause an exodus on your user base.
The reason is simple: most non-top players in any industry enter the market via low price option. The established planners have brand reputation and you need to offer a compelling product with sometimes good price to get the customers out of their loyalties. Yet, that is not alone. If the player is truly a leader, you have no chance. But you can try, of course.
Think of Apple in its industry. It is not going to be easy to take away Apple customers by offering a cheaper version of iTunes. No way. Apple could raise price by few cents, people will still buy the products. Why? They lead the market.
So for entrepreneurs, your key job is to find ways to lead your market. If you cannot lead your market, you will have difficulty to have price control over your products.