Netflix Psychological Price Increases

Netflix May Be About to Raise Prices

For years, Netflix has charged $7.99 per month for it's online streaming subscription and by all accounts the company is doing quite well. In an attempt to bring in more money each month from subscribers, Netflix appears ready to use some psychology to entice you into paying more!

Middle Price Trick

Many consumers are unaware of the middle price trick, sometimes called reference pricing. This is the practice of using tiered pricing for similar goods to entice the consumer to choose the middle option. There are a variety of examples of this.

Take Starbucks for instance. On menus, coffees are typically offered in three sizes: tall, grande and venti. When choosing to purchase a coffee you may think, consciously or subconsciously, that the venti would be too much, but that the tall would not be enough. You are psychologically enticed to choose the size in the middle, the grande, because you perceive it as average. But Starbucks also has a fourth option that is not advertised, a short, which is even smaller than the tall. If you walked into a Starbucks and saw "short" "tall" or "grande" on the menu, you would be more likely to choose a "tall" because again, you would think to be making the middle of the road choice.

Netflix

This past year, Netflix moved in a similar direction by offering a lower priced option. There is some speculation that Netflix may introduce a tiered system by which the low end service is $7.99 per month, while a premium option is $8.99 and a super-premium option is $9.99. This move would not really be about offering more choice to customers; the purpose here would be to make you feel "cheap" with your $7.99 subscription and move over to the $8.99.

Subtle eh?

I'm not arguing that companies are somehow evil for charging prices in this way. It is up to the consumer to really think about what their needs are when making a purchase. It is my hope that learning a bit about this type of pricing strategy will stop some of you from being fooled into buying more than you really want or need.