Question

Help with initial discussion post :)

• Name one microeconomic concept (example: price elasticity and demand)  that can be applied if you were to research the firm Netflix . Explain your findings and the implications to your chosen firm's sustainability. (chosen firm is Netflix)
• Using the same microeconomic concept chosen above, explain how it would be applied to the firm where you work or the type of firm you hope to work for in the future. What does this imply about this firm's future? (Any firm / scenario is fine)

Answer 1

Price elasticity of demand

Netflix's subscriber base has proven highly price-inelastic. That's to say the change in demand isn't very big compared to the change in price. Just 3% of customers in a Streaming Observer survey said they'll definitely cancel their subscription after Netflix's latest price hike.

But it's a lot easier to say you'll cancel than to follow through. Netflix hit just two price hiccups in its price increases in the past. It saw backlash when it separated its DVD-by-mail and streaming service subscriptions, effectively increasing the price for customers that wanted both. It also saw higher-than-expected churn when it increased prices for longtime customers in 2016 to match its then-current pricing.

But since the end of the first quarter of 2014 to the end of 2018, Netflix has grown its U.S. subscriber base 70%. Its subscription price for its most popular plan is now 62% higher than it was in the first quarter of 2014. Customers can't seem to leave Netflix.

A combination of a best-in-class content library with no perfect substitutes and the relative price inelasticity of its customers should give Netflix room to continue increasing its average selling price over the next few years. That ought to translate into continued operating margin expansion.

Connecting to my job,

Assume that I am working working in Marlboro. In 2020, Marlboro was by far the most valuable tobacco brand in the world, with a brand value of almost 33 billion U.S. dollars. As we all know there is a high demand for cigarettes in US and among this Marlboro is having highest brand value. So the company is having a inelastic demand for their products. So if there is a small price change in the cigarettes, there will not be a significant demand decrease. Through this approach we can increase the profit of the Marlboro.