I recently decided to switch from Blockbuster Online to Netflix. Back in college I had Netflix, but had switched because of Blockbuster’s lower prices and in-store coupons. Well Netflix has lowered their prices and Blockbuster keeps reducing the number of coupons they give.
So I went to sign up, and accidentally entered the email address I had used with Netflix years ago. It told me I wasn’t elligible for the free trial and offered me a selection of different plans, starting at $4.99. But their intermediate plans were listed as $13.99 and $16.99, one dollar a month MORE than if I was a new customer.
Checkout these screenshots to see what I’m talking about:
Prices for Old Users: The 2 and 3 DVD at-a-time plans cost $13.99 and $16.99 respectively.
Prices for New Users: The 2 and 3 DVD at-a-time plans are $1 cheaper for new users.
And once you’ve identified yourself as a returning member, Netflix sets a cookie in your browser so there’s no easy way to get to the New Member prices. A less observant user might not even realize that lower prices are possible!
Seems like Netflix is engaging in some pretty blatant price discrimination. The question is why? I guess that Netflix is very concerned with luring new customers. I suppose old customers who are returning to Netflix are slightly less price sensitive because they are probably returning after trying, and not being satisfied with, the competition. Also, maybe customers are willing to pay more to revive their old rental queues and recommendation histories (although this is doubtful, considering the data is bound to be old and probably way out-of-date).
For this specific situation, to get around it, all I had to do was plug in a different email address and presto, lower prices. As for the cookie, I just switched from Firefox to IE. Alternatively, I could have cleared my cookies. But seriously, I shouldn’t have to jump through hoops like this.
In the offline “real” world, it’s not always possible to have perfect information, so stores can price discriminate. To find the best price for seedless watermelons, I have to run around to different grocery stores, which takes time. Also, with offline goods, you usually know you’re being charged more. No one shopping in the ritzy part of town is surprised to know that things cost more than in the dilapidated parts of town. You don’t like it, but people usually recognize what’s going on.
In the world of online goods, price discrimination is very hard to pull off. A quick Google search will usually turn up the cheapest price. So trying to charge different customers different prices usually just ends up causing you to lose the sale. Also, the means of differentiating customers is much more subtle, and sometimes borders on invasion of privacy. Most web surfers have no idea that their behavior is being tracked, often with the goal of figuring out if they’ll pay more. CNN ran a a great article on this topic titled “Web sites change prices based on customers’ habits.”
So the key is to be a vigilant shopper. Check other stores before deciding on a price. You might want to go as far as to clear your browser’s history and temporary files, restart the browser, and go back to the page before buying.
But if Netflix or any company wants to get a little money from old customers, try actually offering me added value. Netflix could have offered me the ability to import my queue from Blockbuster or a way to quickly list all the movies I’ve seen in the past few years. Being creative is good, and I’ll pay extra for that. Trying to trick me is bad, and makes me like your brand less.
In some cases, companies have gotten into hot water trying to price discriminate. BestBuy realized that customers in their store could use the internet on their computers to check the online prices versus in-store prices. So they setup a fake BestBuy.com site that in-store computers displayed that included higher prices. Of course, that in itself isn’t illegal, but BestBuy is being sued due to allegations that it intentionally advertised lower prices then pulled a “bait and switch” and used the phony in-store BestBuy.com to “prove” to customers that they were just mistaken. See the full writeup at the Ecommerce Times site.
In this case, I’ll be using a new email address to get lower prices, thank you very much.