How Netflix Getting Rid of the Cheapest Plan Will Affect the Streamer's Future? Explained

Netflix announced on July 18 that it will discontinue its most affordable ad-free plan for subscribers in the United States and France, as part of its second-quarter earnings report. This change might decrease their subscriber base as cost-conscious customers look for alternatives, which could impact revenue.

The move may also affect the streaming platform's market share and competitive position. It suggests that Netflix might be aiming to focus on higher-value products or find new ways to stand out in the competitive streaming market.

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Impact of Netflix removing its cheapest plan

The cheapest ad-free tier on Netflix, which began at $11.99 per month, was phased out by July 13.

To continue using the service, customers must select one of three plans: $6.99 ad-supported, $15.49 ad-free, or $22.99 ad-free 4K premium. Here's how this change might impact the users:

1. Impact on subscriber growth

This decision is likely to affect the subscription figures most notably, specifically, net additions of subscribers, particularly in the segment of price-sensitive consumers.

The lowest subscriber group for this streaming platform includes students and low-income individuals, who are now affected by the higher service price. As new, cheaper streaming services enter the market, the streaming platform risks losing these customers, which could slow its growth.

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2. Financial implications

On the financial front, removing the lowest-priced plan and thus recovering costs can also raise the average revenues per user (ARPU), which may positively impact Netflix’s short-term revenues.

However, this must be weighed against the prospect of losing more subscribers in the long run and the solvency of the company. The problem, however, is that if the price change leads to massive cancellations, the revenue gains projected may not be achieved.

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3. Subscriber retention challenges

Existing customers on Netflix's basic plan might leave due to higher costs, as they initially chose the service for its affordability and content variety. With the entry-level option removed, some users may not upgrade their subscription if they don’t see enough value, which could pressure the company to maintain its customer base despite rising costs.

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4. Brand perception and customer loyalty

Another concern that the streaming platform may encounter with this pricing strategy is the brand perception of customers and the company's brand loyalty. The platform is easily accessible and perceived as offering good value for money; however, increasing prices could damage consumers’ attitudes toward the company.

Old users are likely to feel out of place and thus may have a poor attitude towards the brand. Making sure that the content quality and the improved user experience match up to the higher costs will play a critical role in consumer retention.

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Closing lines

Removing Netflix’s cheapest plan is a problematic strategic shift. This is mainly because it may affect the company’s ability to attract new subscribers and retain the existing ones due to the increased competition in the market.

Removing the cheapest plan may increase revenue initially, but it risks losing price-sensitive customers to competitors. To maintain this strategy in the face of increasing competition, the streaming giant must demonstrate the value of its higher-priced offerings.