COVID-19: Customers willing to pay more than ever for Netflix
COVID-19 and the resulting restrictions on public life have significantly changed customer behavior. It is safe to assume that certain products and services, like entertainment streaming, have a much higher value to consumers than before. But how much higher is that value? Over several years, the global strategy and marketing consultancy Simon-Kucher & Partners has measured willingness to pay for Netflix among MBA students. During the pandemic, Netflix’s pricing power has increased dramatically. Whereas in the past, a 10 percent price hike would have resulted in a six percent decline in demand, our latest survey shows us that the same ten percent price increase now would only drive 1.3 percent of customers away.
[Boston, MA], [June 17, 2020] – Netflix would have room to raise its prices and still rely on strong sales volumes, according to the results of Simon-Kucher’s latest trend barometer. The survey, which is conducted three times a year among MBA students at the London Business School, measures price elasticity, the mathematical expression of how a product’s sales volume will change in response to a change in that product’s price. “The results indicate that price elasticity for streaming services is at an all-time low,” says Mark Billige, CEO of Simon-Kucher & Partners. “For the past three years, the calculated price elasticity for a Netflix subscription was approximately -0.6. But in our June study, we saw elasticity collapse to just -0.13. That means that for the same theoretical price increase, volumes would now only fall by about a 1/5th of what we would have expected in the past.”
Breadth of content more important than price
The survey participants very quickly adjusted their perceptions of price and value for streaming services as the environment changed; when asked to rank the most important criteria for choosing between different streaming services, breadth of content available and access to latest releases were the first and second most important criteria, whereas price was only fourth in importance.
With social distancing rules and restrictions on public life imposed due to the coronavirus pandemic, it is no surprise that customers value streaming services like Netflix now more than ever. And this value translates into a higher willingness to pay for the service, too, yet it remains to be seen whether this is a permanent change in value perception, or just a short term effect during lockdown conditions.
“While we would need to conduct a more representative study before making any concrete recommendations on optimal prices, these results send a very positive message to streaming providers. Consumers are currently having a crash course in what they can (or can’t) live without. And streaming services are definitely in the ‘can’t live without’ bucket,” explains Billige.
Billige recommends that companies in all industries review their price elasticities. “This crisis just shows us that it’s never been more crucial to know how customers perceive your products and services when making pricing decisions.”
*About the survey: The LBS online survey June 2020 was conducted by Simon-Kucher & Partners as part of a course at London Business School. It examined the topic of streaming services, in particular the participants’ likelihood to buy Netflix or alternative services under various price/value scenarios and surveyed 76 MBA students from six regions (Europe, Asia, North and South America, Middle East, and Australia and New Zealand). The study has been conducted nine times since 2017.
Simon-Kucher & Partners, Strategy & Marketing Consultants:
Simon-Kucher & Partners is a global consulting firm specializing in TopLine Power®. We help our clients achieve growth and profit targets by applying practical, evidence-based strategies. Simon-Kucher & Partners is regarded as the world’s leading pricing advisor and thought leader. The firm has over 1,400 employees in 39 offices worldwide.