Raising Prices and Improving Customer Retention

About a month ago, Netflix increased the monthly price of their subscription streaming video service for new users:

Screen Shot 2014-05-31 at 9.52.23 PMTypically, any time a business raises the price of a service, the natural reaction of the market is for existing users to decrease demand for that service and for an increase in subscription cancellations. However, Netflix did something clever that not only would keep these cancellations in check, but may even help improve customer retention.

By also announcing that existing users will keep their current rate of $7.99/month for the next two years, existing users feel special to be “grandfathered in” to this special low rate and have a financial motivation to not discontinue their existing subscriptions.