You want to launch a subscription based product like Netflix. How would you price this product?

Question

You want to launch a subscription based product like Netflix. How would you price this product?

Assume the product to be launched in the market competes with the likes of Netflix, Hotstar & Youtube.
Arrive at a pricing plan (make assumptions if required)

Asked at Hotstar over a year ago

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Chetan Channa · Answer 1 · 2020-01-27T09:24:00+0000

Ask questions to understand the product

Since you talked about Hotstar, I am assuming the product will launch in India first? Yes
What type of content will it host, for eg, live sports or UGC or similar to Netflix? It would be similar to Netflix, and we are banking on our originals and the right mix of syndicated content to differentiate ourselves. We won't be doing live sports.
Would be available in on different devices - TV app, tablet app, phone app, websites, etc.? Yes
Is there any consumer segment/geography (since India is vast) we are targeting? Everyone who watches online videos is our target across India
What are the immediate goals after launch? We need to capture users as well as test market if our product & content is being liked or not.

Re-iterate the understanding

We have to decide subscription prices for new Netflix like service being launched in India. The immediate goal is to test the market, get an understanding of consumers &, in the long term, we aim to become #1.

Let's figure out our options for pricing

Cost Plus Pricing - Doesn't fit since the aim is not to turn profitable, and also cost would keep on increasing as we do more content.
Value-Based Pricing - This look like a good option. To evaluate this we will look at our competitors & see their pricing. As per my knowledge, Netflix is 800Rs/month, Hotstar is 250Rs/month & other services are cheaper around 100Rs/Month.

So basis, that we can say that we will need to be lesser than 800rs/month or else we will price ourselves out. Netflix has a very small user base & even they launched a mobile-based cheap plan at rs 99 a month, if am not mistaken.

Now let's do a little bit of customer segmentation.

Kids & Toddler - Watch cartoons/Parents are the deciding factors here. I am assuming; we have kids content. Watches on whatever devices parents have.
High School Kids - Get pocket money to pay. Will most probably use the phone to watch
College going - Watch a lot, have a little bit higher propensity to pay. Will use laptop or phone.
Mid/Low-income adults - Just want to access to content, no preference of device. Most probably phone
Affluent Family/Adults - Earning but still seek value. Will watch it late night or during traveling. Limited time to watch but need good quality content. May have many devices.Would have large TV capable .

Looking at the above segments with each using different number of devices, watching different content & watching the different amount of content, I would suggest tiered based pricing basis type & number of devices and type of content.

Since the idea is to test, We would launch all the plans with a limited duration free trial. This would help us in figuring out :-

How many people are actually interested in the product & content - This would be the top of funnel & if this number is small then even the cheap pricing won't help
Conversion rate from free to paid - We can check how many people are converting from free to paid. This will give us an idea if the conversion rate is as per our expectations from profit/revenue point of view.

Tier Recommendations

Mobile only & Kids Only - Cheapest plan. Needs to be less than 99Rs/month. Will start with 50Rs per month & a free trial to figure out.Would limit the number of devices to 2 or 3.
Mobile only for one device all content - Less than 99Rs. Will start with say Rs 70 with a free trial.
Multiple screens (except TV) and devices, all content - Would launch this at relatively higher price point like 200Rs/month. Within this we can have multiple tiers like 3 devices, 5 devices etc.
Multiple Device including TV & all content - Would start with say Rs400 a month.Since content quality is much more discernible on TV, we can have separate tiers within these tier for various video qualities (like HD , vs Non-HD). We would also need to put a limit albeit high on number of devices to prevent fraud & misuse.

Bella Rubin · Answer 2 · 2020-01-23T04:29:44+0000

Approach

1. Clarify the Q

2. Brainstorm

3. Summarize and give recommendation

Qs

1. Where are we located? USA & India

2. To confirm, our subscription based product is a platform to stream content? Yes, competing against Netflix, Hotstar and YT TV

3. Who is our target audience? Adults ages 30-40 who enjoy watching TV after a long day

4. What is our competitve advantage? Original content and curated selection of popular shows & films

5. What do our competitors charge? Netflix is $8-14/month, Hotstar is $4/month (converted from 299 rupees) and YT TV is $50/month

6. What are our business goals? Grow membership and become the #1 streamer in the industry

Brainstorm quietly

Summary & recommendation

First I would segment the market between the USA and India. Then, I would survey the market and run user tests explaining our competitive advantage and asking folks what they would pay for it. Since we are new to the streaming wars, it is important to be strategic and perhaps offer cheaper prices than competitors until we gain brand recognition or receive awards for our original content. Like Netflix, it might be a good idea to offer a basic and premium subscription ($8 to stream on 1 device, $15 for 4). 30-40 year olds typically have jobs and are not in school, so they can afford to spend a couple of dollars a month to relax to TV, but it is important to keep prices competitive to acheive goal of expanding user base.