While Blockbuster was making hundreds of millions of dollars ( $800 million, to be exact) in late fees, which constituted roughly 16% of its total revenue, Netflix was playing the long game.Īnd, as it eventually turned out, people valued Netflix’s ease and affordability above all else. Blockbuster, on the other hand, was charging about $4.99 for a single three-day rental. Netflix allowed its clients to rent four movies at a time with no return-by dates for the $15.95 subscription plan. As a result, even before launching its online streaming service in 2007, the company had already gathered a significant following due to its innovative idea in the video rental niche. Since Netflix had no late fees, it became the go-to option for customers upset with Blockbuster’s pricing model and limited selections. How did Netflix manage to one-up the top movie-rental business in the US? Again, the answer is penetration pricing. Someone else was at the top of the food chain - Blockbuster, a video rental company that dominated the home entertainment market despite its numerous flaws. It gained the company a reputation as the industry leader and forged its image as the ultimate streaming service of choice.īack in the late 1990s and 2000s, only a few could predict just how successful Netflix’s model would turn out to be. The fact that Netflix was the trailblazer in the field of online streaming is also not without merit. While people could cancel their Netflix subscription as soon as their plan is automatically upgraded to a more expensive version, only a few make this move.

Plans in its offer range from $6.99 to $19.99 a month, with the most affordable options available only for a limited time.

This subscription-based streaming service provides a tiered pricing model that is cheap and easy to understand. Netflix comes to mind as the standout example, as it remains the most popular video streaming service in the US. Multiple companies benefit from this kind of behavior. In this case, you must do your due diligence, determining which offer is the best for your needs, registering on the chosen platform, and taking care of numerous formalities.įor many, redoing this process just to save a couple of bucks per month isn’t worth it. Suppose you’re looking for a streaming service with the most affordable plan. It is a clever move, as humans are creatures of habit.Īfter forming a connection with a streaming platform, we often find it challenging to break this bond and switch to a competitor. Streaming companies frequently use penetration pricing to gain the upper hand over the competition and pocket a significant portion of the market for themselves. Below, we look into a few of the most noteworthy cases worth examining in greater detail. Throughout the years, we’ve witnessed countless examples of penetration pricing in action. By making as many customers as possible aware of its one-of-a-kind products, a company can lay the groundwork for converting these potential customers into returning clientele. It’s an excellent way to shine a spotlight on any given brand. The strategy allows new products to penetrate the market effectively (hence the name). If used correctly, it can help an enterprise grow its customer base and increase revenue without spending a fortune on marketing. Nowadays, more and more companies are searching for ways to incorporate it into their operations.Īt its core, this strategy involves offering a new product or service at a lower cost to attract more customers before raising the price back to normal. In the past, many industry giants, including Netflix and Gillette, have used it with great success. Penetration pricing is a strategy that has recently gained a lot of attention from small business executives.

Company that uses penetration pricing