Jaron Rijven

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A New Pricing Strategy for Netflix

Netflix has witnessed huge third-quarter earnings. This is partly realized by the success of the new pricing strategy of Netflix. Over the last years, Netflix has adopted the ‘bundling strategy’. The company has bundled its product with multiple hardware devices. Also, last year started bundling their service with other service providers like T-Mobile (Niu, 2018).

The bundling strategy is effective because the products which Netflix is bundling with, work together. Besides that, Netflix would have zero incremental costs, but will benefit of the additional sales. Lastly, the switching costs of leaving Netflix will increase when the company is bundled with another product.

A positive thing about bundling is the additional pattern of the cognitive bias ‘relativity’ (Lecture 3, Li, T). Companies can increase their sales because people really don’t know what they want until they see the context. If two bundled products are offered, the customer notices the advantage of buying both products together. Because of the fact that Netflix is an unlimited service, it is happy to receive any extra sales.

I my opinion, Netflix is executing a great strategy by bundling. However, Netflix might earn additional revenue by implementing a versioning pricing strategy. This is a second-degree of price discrimination and is about offering a product line and watch the choices of consumers. Netflix could offer different version of their services by providing different prices for a different amount of available movies and series. The segmentation is than based on self-selection and on willingness to pay for different versions. Additional revenue could be achieved by this.

So, Netflix should in additional to their bundling strategy, also focus on a versioning pricing strategy. By combining both, the company could achieve both extra sales and an increase in revenue.

https://www.fool.com/investing/2018/10/17/bundling-continues-to-boost-netflixs-subscriber-gr.aspx

Lecture 3, Information Strategy, Li, T.

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In the article of Christensen et al. (2015), disruptive innovation originate in low-end or new-market footholds. Also, these innovations underperform in the mainstream markets until the quality of the products reaches the same level as incumbents.

Since the enormous increase in e-commerce sales, the demand towards traditional financial institutions to intermediate your transactions increases. The role of the incumbents in the mainstream market is huge, but some concerns are detected. Because of the risk as an intermediary, the incumbents are reluctant to deal with anyone who isn’t well-off or familiar.

This is not the case with Bitcoin and the underlying Blockchain technology. In the example of e-commerce sales, merchants don’t need anyone’s permission or dependence to go into business.

Yet, Bitcoin doesn’t seem like a disruptive innovation when applying it to the theory of Christensen et al. (2015). It is true that it underperforms in mainstream markets and bring about new features valued by new markets. So, it is in fact not yet a threat for the mainstream market. But, when looking at the criterion of originating in low-end or new-market footholds, Bitcoin does not meet this requirement. First of all, Bitcoin as a payment-method definitely didn’t enter new-market footholds. It is a substitute for the conventional banking system and doesn’t create a market for non-consumers. Secondly, Bitcoin is not a technology that focusses on satisfying the low-end customers. Therefore, Bitcoin doesn’t meet the requirements of being a disruptive innovation.

Despite the loss of hype and huge decrease in price, the fundaments of the technology stayed the same. Mainstream adoption is still far way, but in my opinion Bitcoin will disrupt the incumbents because of transparency and independency. Although Bitcoin doesn’t typically focus on the low-end customers, it could become popular when people realize what kind of transaction fees traditional financial institutes claim.
The lower transaction fees are an advantage for individuals with a low income. The increase in popularity of Bitcoin could make a shift to a practical use by the low-end market and eventually towards the mainstream market.

https://hbr.org/2015/12/what-is-disruptive-innovation

https://www.forbes.com/sites/timothylee/2013/04/09/bitcoin-is-a-disruptive-technology/#4265ceb02956

-https://www.norupp.com/bitcoin-and-patterns-of-disruptive-technology

A New Pricing Strategy for Netflix

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Is Bitcoin a disruptive innovation?

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