Pricing Methods

Pricing Methods

A difficult but important issue an entrepreneur must decide is how much to charge for their product or service.

Before an entrepreneur can develop pricing methods they need to consider a couple of factors:

Positioning and Cost: How well will you position your product in the market? Is pricing going to play a key role? One will always try to keep their prices as low as possible and still create a profit. (Allen, ND)

Netflix positioned themselves as the number one provider for mail to home movie rentals putting other companies basically out of business. Their pricing methods and strategy was unheard of and others thought they were going to fail, contrary to other businesses belief their stocks skyrocketed and the business took off like wild fire. Their initial claim to fame was "No Late Fees". You were able to keep the movie as long as you wanted and not pay a late fee when mailing to movie back. They were charging a flat rate for so many movie rentals a month. The big box stores couldn't compete with this type market. Netflix also offered free streaming online video to customers with a subscription. How could Blockbuster, Movie Gallery or Hollywood Video compete with this type of market? They couldn't. These companies filed for bankruptcy, closed many of their stores and completely put Hollywood video and Movie Gallery out of business. (Murphy, 2011)

Fast forward from 1997, Netflix announced in 2011 that they were going to offer streaming online video to new customers thus avoiding their traditional mailing out of the DVD service.

Netflix is offering new customer viewing of thousands of movies and TV episodes instantly on your TV via PS3, Wii, Xbox 360 or other devices that can stream Netflix. You can even watch Netflix on your computer. Compared to their earlier pricing that was approx. 17.99 a month it is now 7.99 a month to just stream the movies to your personal screen. By doing this they are anticipating on reducing their warehouses that are full of DVDs and place the movies on computer hardware. By changing their delivery method and pricing methods, Netflix will be able to reduce their overhead, real estate footprint and the cost of mail service. This will increase the customer's movie availability and, overall, the company's revenue will increase. (Netflix, 2013)

Personally I feel the company is going in the right direction with their online streaming capabilities. We are in the "Now Generation" where the younger generation doesn't want to wait for the movie to be delivered to them through the mail. They want to be able to stream it to their TV's, cell phones or tablets. This is one of the reasons Netflix is slowly reducing their DVD service.

Since there isn't one most effective way to sell a product and pricing