Kristen Berman

Netflix once told us that “love is sharing a password.” And now, they’re putting that love to the test with new restrictions on password-sharing.

They have this funny tendency of increasing price and taking away services. This feels unfair.

People get mad when things feel unfair.

But the irony is that Netflix may be making things MORE fair with this change.  

Follow me: 40% of Netflix users share passwords now. For the 60% who don’t, this means they’re taking on a larger load on behalf of the community. Every time Netflix has increased prices in the last few years (which they've done a lot) paying customers have been the hardest hit:

The 40% are getting double or even quadruple the value from Netflix (depending on how many people they share with!) since their subscription is going to multiple people.
Meanwhile, the 60% are getting proportionally less value from the same price.

According to the “freeloader effect,” people who use Netflix without paying aren’t just freeloading off their friends, but off the whole community.

In other words, when lots of users don’t pay for Netflix, it becomes a worse service for EVERYONE. So why not frame these new restrictions around fairness—not just for paying subscribers, but for the whole Netflix community?

Because here’s the big idea: having more people “pay in” benefits us all.

At the end of the day, Netflix is a real company with real costs. Yes, they’re profitable—but losing billions of dollars in income seriously impacts the quality of their service.

So let’s hope Netflix sticks the landing—and in the meantime?

Pass the popcorn 🍿

#BehavioralEconomics #ProductManagement #Netflix

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Is someone worried about ChatGPT? :)

Grammarly just launched a 50% discount—and since price signals value, I wonder how people will perceive the offer.

We know from research that when we discount a product down, we may also lower the perception of its quality.

(Grammarly—I know you’re working harder than ever and I see you).
 
But discounts may change our perception of a product’s value for the worse. This is especially true when the product’s value is hard to determine. How much should I pay for a donut? There’s an acceptable range. How much should I pay to write better emails? Unclear.

We solve this complexity by taking every mental shortcut we can. Price acts as a heuristic… We assume it reflects quality.

At first this seems like a good rule of thumb. But price and quality aren’t always related. Take store-brand or generic meds, for example. They contain the same active ingredients as their name-brand counterparts, but not everyone trusts them. Why? People infer they’re inferior because they cost less.
 
Which brings me to the “Veladone” experiment. Maybe you’ve heard of it.

Participants in this study got electrical shocks and were then given a placebo they were told was a painkiller. The catch? Half of the test subjects were given brochures showing that the drug had been marked down from the original price of $2.50 a pill to 10 cents a pill (discount!).

After they got the shocks again, 85% in the full-price group reported pain relief from the painkiller. But only 61% in the discount group reported pain relief.

What happened? Our perception of quality as a reflection of price can impact our product experience. The cheap = low quality association means discounts can erode perceived value.

So the next time you’re using discounts in your pricing strategy, remember:

1️⃣ Price and the perception of a product go hand in hand;
2️⃣ When we discount things down, the perceived quality may go down.

Discounts CAN sell stuff. No denying this. But use them with caution, or you could pay a price in product and brand value perception.

#pricing #psychology #BehavioralScience

P.S. Irrational Labs helps companies solve pricing challenges at scale. Curious how this works? Get in touch 📧