In the wake of the post-COVID-19 landscape, companies are navigating the quest for increased profitability with ingenuity. While hyper-inflation provided air cover for plain price hikes as a survival imperative, many are now reshaping their customer offerings to fine tune profitability.
A standout example is Amazon, which, in January, started to include advertising into Amazon Prime videos, accompanied by an additional fee for an “ad-free” experience. This move mirrors similar adjustments by Netflix and Disney, albeit they included in their basic plans to entice new customers. (Amazon Prime Video Will Charge Extra to Remove Ads, Starting Jan. 29 (msn.com)).
These tweaks to product offerings undoubtedly contribute to the bottom line, but the question arises: how can companies execute such changes without facing a severe backlash from their customer base? The solution lies in meticulous customer segmentation.
Presumably, Amazon categorized its customers into three primary groups:
- Those who value the convenience of ad-free Prime Video but wouldn’t necessarily pay for it as a standalone service.
- Those who enjoy Prime Video and are willing to pay a premium to avoid interruptions from advertising.
- Those who don’t heavily utilize Prime Video and are indifferent to the change.
Customers in the third category are essentially indifferent to the alteration, posing minimal risk for Amazon. Conversely, the potential backlash rests with customers in the first category, who might perceive a reduction in value for what they were initially paying and feel obligated to spend more to maintain the status quo. Amazon’s calculated gamble likely hinges on the belief that the number of customers willing to pay for the service far outweighs the potential customer discontent in the first bucket.
When contemplating alternative offerings for your customers, analyze your customer segmentation to identify groups willing to pay for specific features. A general rule of thumb is that if customers aren’t willing to pay for a service, it may not hold significant importance to them.
Be mindful of customer perceptions regarding what should be inherently included in your existing offerings and pricing. A prime example is the backlash faced by airlines when they began charging for the first piece of luggage. Many customers assumed this was inherently included in the ticket price, leading to a loss of credibility and customer loyalty for several airlines. Rethinking their approach, distinguishing between base ticket features and more expensive ticket perks, became imperative to regain customer trust.
The key takeaway is succinct yet crucial: there is ample room for creativity and profit hunting, but thorough customer segmentation should precede any strategic moves to ensure success. Get in touch if you’d like some help.
