Here's one way to look at the 60 percent Netflix price increase: The bargain-priced sale was really good, while it lasted.
But giveaways don't last forever at companies, or companies go out of business. Companies use bargain-priced sales to gain customers in large numbers, so they can up sell them later into categories where they are profitable, and drive revenue and sustainable business growth.
That's what Netflix was doing, offering customers unlimited streaming video services and DVDs by mail for $9.99 per month. It was just a bargain sale to attract customers, and the strategy worked, as Netflix has grown to more than 20 million users.
Brick and mortar food chain Dunkin' Donuts is using a similar strategy this summer, discounting the price of its iced teas to 99 cents, regardless of the size. Not that 99 cent iced tea is a money-losing proposition, but it's well below the normal $2.49 price customers pay for a large iced team at Dunkin' Donuts.
In the hot summer months, Dunkin' is using the sale to attract customers. That's why Gap puts pants on sale at $29, and that's why Joseph Banks has sold sweaters two-for-one in the holiday season.
Get customers in the door, then you can sell them more.
For the consumer, such pricing is a great deal, while it lasts. But Netflix planned to diverge from its $9.99 pricing strategy for unlimited streaming video and DVDs by mail all along. The model simply did not work beyond gaining customers and ramping up revenue. Profits are hard to attain, though, considering the high costs involved with DVDs by mail, including shipping, handling, and DVD replacement costs.
So it's understandable that so many Netflix customers are upset with the 60 percent price hike, from $9.99 to $15.98, but they should probably be more thankful they got such a great deal for such a long time.
Nothing so good last forever.
Since Netflix has been aiming toward such a move for some time, company officials expected the backlash, and they are nonchalant about the price hike complaints.
We knew there would be some people who would be upset, said company spokesman Steve Swasey. To most people, it's a latte or two.
If anything, Netflix customers will see more price increases in the future, but that doesn't mean they'll all flee, because they may not have anywhere to go to get a better deal. Many point to the fact that Netflix will have to pay more and more for content in the future, and they are right.
But even if the company has to raise prices for unlimited streaming video services, now priced at $7.99 per month, several times over the next few years to deliver content and operate profitably, that's still less than consumers can find through traditional cable television options.
To download a movie from a cable provider, customers typically have to have a monthly bill of $100 or more -- then they have to pay to download many movies and shows. Yes, they get more channels, and many free movies and shows, but much of it is programming that consumers today don't want.
They just want want to get the movies and shows they want, when they want them, and they don't want to pay much for them. They don't want a big monthly financial burden there every time the calendar changes.
Thus, in that regard, Netflix is still a deal for many consumers, either at $15.98 or $7.99 for the new unlimited DVD by mail deal (one at a time), or the $7.99 unlimited streaming video offer.
The unlimited streaming video and DVD by mail deal now costs more -- 60 percent more -- but consumers will have to look at it like Dunkin' Donut's 99 cent iced tea special. It's a great deal, while it lasts.