Elasticity, Again
You can probably raise your prices.
Even if you already have, you can probably raise them again, because you probably didn’t raise them as much as you could.
We have banged the price elasticity drum in this newsletter more than any other topic (this is the third, maybe fourth newsletter dedicated to this in our 26 months of writing this), and we could, perhaps, write about it even more.
The impetus for belaboring this point is to tell you that Disney, which raised prices on Disney+ by 38% in December, has retained 94% of its subscriber base since the price hike—and it’s likely, according to a Wall Street Journal article, that another hike will be coming.
From the article:
“In our zeal to grow global [subscriptions], I think we were off in terms of that pricing strategy, and we’re now starting to learn more about it and to adjust accordingly,” Mr. Iger said last week at a conference hosted by the investment bank Morgan Stanley. “We have a lot of rationalization to do from a pricing perspective, but that’s one path to profitability.”
Though referencing what one of the most recognizable brands in the world is doing may seem like a tenuous connection to small, growth-oriented CPG, we see it differently.
Disney was a startup entrant in the streaming wars (a space that’s not as crowded, but is nearly as competitive, as CPG) and priced a premium catalogue at a non-premium price. (It launched at $6.99/mo.)
From our first visit to this topic:
A slightly-better-for-you version of something at not-quite-a-premium price is how the traditional DTC brand could be described. You could also describe this as attempting to blur the lines between value and high end. And based on the IRI insight, it sounds like that approach may end up being an uphill battle.
The goal, as the Iger quote above notes, was to capture market share as quickly as possible. Perhaps the thinking was a lower price point was necessary to drive such rapid trial, but the fact that the current price ($10.99) better aligns with the catalogue (and retention is so strong) seems to suggest that maybe the price could have been higher from the jump.
Disney, obviously is mindful of this. It already raised prices once before. It will likely do so again. They’re paying very close attention attention to where the breakpoint is for demand.