Not All Value Is Equal

Value is what makes a customer engage with a certain product or service. If the offer is full of continuous value then they will never leave, however if this value dries up or disappears then it is adios and onto one of your competitors. But when it comes to translating value to price . . . Well that is a difficult translation that Netflix appears to have mastered.

Netflix launched on Australian shores recently at a much lower price than many of its overseas branches. Where Australian audiences are paying just $8.99 per month for the basic service, the US and UK audiences are paying AUD$10.25 and AUD$11.50 respectively.

Is it a publicity stunt? An incentivised starting offer to get new users on board? Or even just a computer glitch? Surprisingly it is none of the above. It is an attempt to combat piracy!

While a simple look at the industry would suggest that Netflix’s biggest competitors in Australia are Stan and Presto, that is actually completely off the mark. Netflix’s biggest competitors are pirates. These customers are already interested in the category but have found a service that satisfies their entertainment needs at a much lower monetary cost.

Netflix is working under the assumption that if customers have access to reasonably priced entertainment when it is immediately released they will avoid the moral cost of pirating. So in each country they launch, the price is determined in relation to the piracy rate. As Australia has the highest rate of piracy per capita in the world, the Netflix price in Australia is one of the lowest.

But their relationship with piracy doesn’t end with pricing, it also includes content development. Netflix looks at the most popular shows that are being pirated in each country to determine which shows to commission for that location. That way, customers are getting a legal option at an affordable price with the content that satisfies their entertainment needs.

Even though it is a roundabout way of getting there, this company is a brilliant example of customer orientation. They look at what their customers want and what value they will be getting from it and then cater their product to match their customers’ needs. From this customer orientation stems increased customer loyalty and value making the product even more important in customers’ lives.

It isn’t rocket science, it’s just Netflix’s market-winning strategy. And it certainly isn’t doing too badly for them!