Neflix Cheap

In economics, you are taught that for any product/service, there is a vast range of prices that consumers are willing to pay. Take bread for example, which retails for around R20 a loaf. There are people who would be willing to pay R40 for a loaf, and there are some people who won't pay more than R10 for a loaf. The goal of marketers is to try create mechanisms where a company can sell their products at many different price points, without having a case where those who are willing to pay a premium end up paying a discount. Unfortunately, for most companies they are forced to pick one price point.

Netflix has come up with a clever way to add more subscribers to their service by creating a discount version - New Netflix plans launched in South Africa - From R39 per month. These lower cost plans have two important distinctions. The first is that you can only watch Netflix on your phone or laptop, and second, the video quality is at a lower resolution. The marketing department has taken the view that those willing to pay more for Netflix, will probably want to watch it on their TV and in Ultra-HD. Those on the discount spectrum, are probably watching on a mobile device and have a limited amount of data.

Effectively, the cost of creating the Netflix product is in their cost of show production. In 2020 the company is expected to spend around $17 billion on content creation! The implication is that they have very high fixed costs and very low variable costs. Given that the variable cost of adding a new subscriber is minimal, every new subscriber is basically pure profit that falls to the bottom line. The goal for Netflix is to have the maximum number of subscribers, where those willing to pay a premium, do pay extra, but also providing a platform for those customers who can only afford a discount option.