Attached is the case needed to be analyze.
Your role in this case is to be a consultant who specializes in the “magic art” of pricing – the only element of the marketing mix, as Kotler and Keller (2016) point out, that is actually revenue producing!
Assume that in response to customer complaints about the complexity of its own pricing, as well as increased competition from Amazon, Netflix is ready to embrace a new pricing model. Netflix has hired you to propose a completely new pricing model or strategy.
Use only the case, the weekly class materials and the following set of assumptions in your analysis and recommendations. [updated]
- Assume in 2011 Netflix chose pricing option #1 from the case and now in 2015 it is time for another pricing decision.
- Assume the only services provided by Netflix are unlimited movie and TV show streaming online, and movie rental by mail order DVD’s. However, Netflix now offers some original content and this award-winning TV programming is not available elsewhere.
- Assume that Amazon Prime Instant Video is a Free service to subscribers who pay $99/year for Amazon Prime but offers consumers additional benefits, unrelated to entertainment, through Amazon Prime. Assume its movie and TV (streaming only) offerings are similar to Netflix, apart from Netflix original content.
- Assume that Netflix is considering a new pricing model for US members only.
- Assume the following is true:
- Netflix has 46 million total members in the US, including 6 million who receive DVD service.
- 40 million Netflix members are “streaming only” who currently pay a monthly flat rate fee for the streaming-only service of $7.99 (Basic), $8.99 (Standard) or $11.99 (Premium). 80% customers are “Basic” customers, 15% are “Standard,” and 5% are “Premium.”
- Assume the only difference between these levels is whether shows may be viewed in high definition (HD) and the number of devices on which multiple shows may be viewed simultaneously. Basic members do not have HD and may view on only one device. Standard members have HD viewing capability and may view on 2-3 devices. Premium members have ultra-HD capability and may view on 4 devices.
- Of the 6 million members who receive DVD service, 5 million consumers pay $7.99/month for the DVD-only mail order service with Netflix.
- Of the 6 million who receive DVD service, 1 million members are “DVD and Streaming” consumers who pay $7.99/month for DVD’s mail order + an additional $7.99 (Basic), $8.99 (Standard) or $11.99 (Premium) for Netflix streaming service. 90% are “Basic,” 8% are “Standard,” and 2% are “Premium.”
- Assume that the new pricing model for Netflix must encompass both streaming and DVD service customer categories (i.e. Netflix has determined eliminating DVD service is not an option at this time).
- REQUIRED ELEMENT #1 NEW PRICING MODEL (Method) Choose a new pricing model for Netflix and explain to Netflix how this model satisfies the pricing objective. You may reconfigure the customer categories (except as otherwise noted). You must identify how much each customer category will pay per month.
- REQUIRED ELEMENT #2 PRICING MODEL EFFECT ON REVENUE Assuming that Nexflix member subscriptions remain stable, what is the effect of your pricing model on Netflix revenue from members (e.g. positive (how much?), neutral, or negative (how much))? Explain this. Include with your proposal an Excel spreadsheet illustrating this. The spreadsheet may be an appendix.
- REQUIRED ELEMENT # 3 COMMUNICATING PRICING MODEL TO MEMBERS Include with your proposal a draft letter from the Netflix CEO Reed Hastings to members briefly explaining the new pricing model you recommend. The letter may be an appendix.
NOTE: Netflix membership numbers are fictitious estimates for the purpose of this case only. Outside research may yield different numbers. Therefore, do no outside research for purposes of this case analysis.
Analyze this case using the information provided in the case, the assumptions and the weekly class materials. Written case reports are individual assignments and should not exceed 8 pages. Executive summary and/or abstract are not required for case studies . Cite sources for all factual material, including those facts from the case [updated]. There is no need to conduct external research for these cases as all the required information is contained in the case. If you need a refresher on what to do for this assignment see How to Solve a Case Study.
Use this format for your report:
-New Pricing Model*
-Effect of Pricing Model on Revenue*
-Communicating Pricing Model to Customers*
*Counts in 8 page limit
#Does not count in 8 page limit
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