According to Businessweek and Tech Inc, Netflix’s recent decision to raise prices have resulted in customer backlash. Instead of having a $9.99 bundle for unlimited streaming and DVD-by mail service, Netflix executives decided to split the service and force customers to pay individually for each product.
As a result, many subscribers turned away and dropped their subscription all together. If only Netflix had a lesson on elasticity and examined the market for their product, the one million decrease in subscribers may have been avoided.
Happy consumers satisfied at the price of $9.99
Based on the idea of elasticity, a good with the elasticity higher than 1 is considered “elastic”. In other words, a jump in price will cause a large decrease in quantity demanded.
Netflix’s failure to recognize the elastic demand for their product has resulted in the failure to keep subscribers happy. This shows that the throne of video-rentals are vulnerable to changes in price and that the crown is up for grabs.
Sure, Netflix may have stolen the spotlight from Blockbusters and Rogers Video, but who’s to say that the light will shine forever. At least for now, the spotlight on Netflix is dimming by the moment.
If only they took a class on elasticity.