I ask because last month, Netflix reportedly did away with free 30-day trials. This is a clear-cut, quantitative decision made by a big public company that can offer a learning opportunity for people running any size business.
Netflix didn’t make an announcement about ending free trials, but eagle-eyed customers and journalists noticed its disappearance, and Netflix ultimately confirmed the change.
“Free trials are not available,” the Netflix website now says, “but you can still sign up and take advantage of all Netflix has to offer. There are no contracts, no cancellation fees, and no commitments. You have the freedom to change your plan or cancel online at any time if you decide Netflix isn’t for you.”
Now, I already have a Netflix account, so I don’t have a dog in the hunt about whether the company should offer free trials. Maybe you don’t either.
And it’s worth noting that Netflix has been trying all kinds of things with its pricing and subscription offerings: including not allowing new customers to sign up for Netflix via smartphone apps (so as to avoid paying commissions to Apple or Google), raising prices, and even offering an entire country (India) two days of free streaming.
But, no matter what kind of business you’re running, it makes sense to pay attention here.
Because pricing is a perpetual challenge for many entrepreneurs, and there’s nothing sadder, at least in the eyes of your CFO, than a business that prices its products or services too low, thus leaving money on the table (or, if you prefer, failing to capture value).
At the same time, you also don’t want to price yourself out of a market, or even send unintentional and disadvantageous signals about the quality of your product by pricing it too low.
What I like about Netflix as an example for smaller businesses 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.
In other words, I can’t tell you how many potential new customers might balk at signing up for a new Netflix account without a free trial–or how many new “customers” (quotes are intentional) who might otherwise attempt to string free trials together perpetually will now pay for a subscription.
But I’ll bet Netflix has pretty good ideas what both of those variables will turn out to be — and if it didn’t before, it will compile those estimates shortly. Also, it benefits here from the fact that this is a pricing decision affecting only new customers–most of its millions of existing customers would probably never even notice or care.
Perhaps these are the kinds of questions you should be asking too in your business.
Look, it’s not as if imitating Netflix is like having a pricing template. There are other factors and questions of scale that probably would make the specific numbers moot for your company, anyway.
But even knowing what questions to ask can be difficult.
And if you’ve ever been in that moment–trying to come up with your best guess for the best pricing strategy for a new product or service–then following the publicly demonstrated moves of a big, commodity service digital company like Netflix can make you a bit more confident in your decisions.