Fast Forward or Rewind?

According to The Wall Street Journal, Netflix has split their services into two subscription types and increased the combined price by products by 60%. They expected to only lose 4% or one million of their customers.

However, due to the price increase, Netflix customers responded elastically by canceling their subscriptions at a faster pace than the company had forecasted. In other words, the elasticity of DVDs and on-demand movies was greater than they had expected. In fact, in the last three months, their stock has fallen 63%, mainly due to this pricing misstep.  

Obviously, they did not take the time to read chapter 6 of Krugman’s textbook.

Although they have recombined their services into one subscription, they have kept the price increase. If I were you, I would not buy this stock as Netflix clearly does not understand how its customers will respond to changes in its services.

So, I now ask you, should Netflix fast forward or rewind? 

Just Cut to the Chase

Article: “Smooth Operators: The Blow-Dry Bar Scene,”  The Wall Street Journal, September 28.

The Wall Street Journal reports a new trend has forever changed the salon industry- Blow-Dry Bars. These salons cater to women who want their hair quickly styled for an affordable price.

The simplicity of the model allows Blow Dry Bars to succeed despite the hair salon industry’s struggles. Stylists are pressed to abandon a perfect quality to quickly cycle customers through the salon, and innovations, such as hair dryers suspended from the ceiling, allow the producers to increase the number of appointments they are able to supply. As profit is determined by the number of treatments, efficiency is the key to this business model. Pricewise, the market price for this service is approximately $35, and companies, such as west coast based Halo Blow Dry Bars Inc., have been able to increase their price from $25 due to high demand.

Personally, I think this is a fantastic idea. What woman would not be drawn to the promise of quality, efficient hair styling in a fashionable salon? In addition, in a recession, Blow Dry Bars provide an alternative to frequent haircut appointments, where the hair is styled. So, now women can look good for less. Besides, in an efficient world, it’s important to cut to the chase.