If you have a Netflix subscription, then you may remember that you received a free trial when you signed up.
Netflix reportedly just did away with free 30-day trials. This is a quantitative decision made by a big public company and people running any size business can use this example as a learning opportunity.
Netflix did not make any announcement about the end of the free trials. It was only alert customers and journalists who noticed the disappearance of this long-standing offer.
The Netflix website now clearly states that the free trials are no longer available. The subscriptions however are quite flexible. There are no contracts, cancellation fees, or commitments. You may cancel online at any time if you decide the service is not for you.
It’s interesting to note that Netflix has been trying many strategies with its pricing and subscription offerings. New customers have the option to sign up for Netflix via smartphone apps. This avoids the company paying commissions to Apple or Google.
No matter the size or type of business you’re running, it makes sense to pay attention to this example. Pricing is an ongoing challenge for many entrepreneurs. There is nothing worse and nothing sadder, in the eyes of a CFO, than a company that prices its products or services too low, failing to capture value. You also don’t want to price yourself out of a market, or even send disadvantageous signals about the quality of your product by pricing it too low.
Netflix as an example for smaller businesses is great because it is that its scale is so large, and the decision so simple, that you can almost do the math without having access to the numbers.
Many potential new customers might balk at signing up for a new Netflix account without a free trial. There likely were many new “customers” who might otherwise have attempted to string free trials together perpetually who will now pay for a subscription.
I would be willing to bet that Netflix has pretty good ideas what both of those variables will turn out to be. There is the added benefit here from the fact that this is a pricing decision affecting only new customers. The millions of existing customers would probably never notice or even care.
These may be the kinds of questions you should be asking in your business. Netflix’s model is not like having a pricing template that fits everyone, but it is a place to start. Taking a shot at your best guess for a new product or service pricing strategy isn’t always easy, but perhaps following the moves of a big company like Netflix can help make you more confident in your decisions.