Netflix membership numbers are on a surge. According to the latest available numbers for the 2024 second quarter, total streaming paid memberships globally went past 277 million, up eight million from the previous quarter of 269.6 million. Net income rose to nearly US$2.15 billion, up 44.3% from US$1.49 billion in the second quarter of last year. Revenue increased 16.7% to US$9.56 billion from $8.19 billion during that period.
Has this revenue success translated into greater accessibility? The short answer is no. The company has decided to sunset its cheapest advertising-free plan. As reported, the company announced the sunset of the US$11.99 per month option on its latest earnings call. Users who want to consume ad-free content will now have to pay either US$15.49 per month for the Standard plan or US$22.99 per month for the Premium plan.
The standard plan—although—has its advantage over the basic plan, which came with the limitation that users could only stream on a single device and download content to a single phone or tablet. In other words, the plan only catered to single, standalone users.
The Standard plan allows users to stream in more than one place at a time, but that comes at a premium of more than 50%.
While a platform’s pricing strategy simultaneously aims at growth and profit lines, questions are floating in the air regarding the future of low-cost services/ products. Are companies keen enough to keep them around? The answer—we believe—is yes. To validate the integrity of our argument, we list five such low-cost staples that are still successful.
Costco Hot Dog
As recently as June this year, Costco reassured its consumers that it was not planning to raise the price of the much-loved Franks anytime soon. The hot-dog-and-soda combo is still available for US$1.50.
Introduced in 1984, one report described Costco hot dogs’ history as almost ‘as long as that of the company itself.’ It is a remarkable feat for the retailer to sustain the price at US$1.50, which would be close to US$4.40 had it factored in inflation over all these years.
According to Jamie Loftus, author of Raw Dog: The Naked Truth About Hot Dogs:
“People like it because it’s delicious and it costs a dollar fifty, which is very loyal to the history of what the hot dog is: a low-price food for the masses that is, ideally, good.”
Loftus also believes that this strategy to keep the price unchanged is a good PR move for Costco as it helps humanize the company.
However, one must also remember that Costco could not keep prices of all its food court items unchanged. In 2022, the retailer had to increase the prices of its chicken bake and 20-ounce soda nationwide. The chicken bake, which used to cost $2.99, was raised to $3.99, and the 20-ounce soda, which used to cost 59 cents, was raised to 69 cents.
Another popular Costco item—its much-famous rotisserie chicken—has cost US$4.99 since 2009. In effect, a well-concerted effort has been made to keep the prices of some of its most popular items immune from inflation.
According to Costco’s financial results for the second quarter of 2024, the company reported a total revenue of $58.4 billion, marking a 6% increase from the same period last year. This growth was complemented by a net income of $1.74 billion, up from $1.46 billion in the second quarter of 2023, reflecting an earnings per share increase from $3.30 to $3.92.
Arizona Iced Tea
Another company that seems committed to keeping its price accessible is Arizona Iced Tea. A report published at the end of June this year quoted Don Vultaggio – the chairman and founder of the brand – saying that Arizona Iced Tea was planning to keep its 99-cent price tag unchanged for the foreseeable future. In an interview, Vultaggio claimed the company to be debt-free and to be completely in charge of all its assets.
“Why have people who are having a hard time paying their rent pay more for their drink?”
– Vultaggio
One of the reasons why Arizona Iced Tea could keep its price low was because it had cut down on marketing. It believes in the power of word-of-mouth marketing, the most organic way to get your brand spread. According to Vultaggio:
“Our marketing plan is to make it look good, make it taste good, and price it fair.”
The strategy has worked out since the brand sells almost one billion cans every year. It would not have been possible to sell these many units had the product not been good.
Apart from saving big time on marketing expenses, the company has also devised many other strategies to keep its prices low. For instance, it uses 40% less aluminum in its cans than it used to, utilizes its factory to lower production costs, and keeps gas costs down by delivering the shipments at night to avoid traffic.
Altogether, it has been a mix of willingness to keep the prices low and successful implementation of intelligent, effective, and innovative strategies. The spirit of the company is reflected in a statement made by Don Vultaggio to the Los Angeles Times, where he said:
“I’m committed to that 99-cent price — when things go against you, you tighten your belt.”
Sam’s Rotisserie Chicken
The Sam’s Club Member’s Mark seasoned rotisserie chicken is still available for US$4.98. Despite being a low-priced item, it never lacked consumer interest. A Washington Post article that talked to people who ate it and were fans of it took note of a range of observations from users.
The comments were like, “I wouldn’t be upset if someone served this to me,” “Nothing about it makes me angry,” “Moist breast meat, good browning on the skin, not overly salted,” etc. In summary, the fact that the price was low did not imply a lack of quality in any way.
Looking deeper into how Sam’s Rotisserie Chicken could sell its menu at such a lower price, reports pointed towards the benefits of the overall category of rotisserie chicken. A detailed report finds the rotisserie chicken to be a prized item for supermarkets as it can pull customers into stores. According to Ernest Baskin, an associate professor in the department of food marketing at Saint Joseph’s University:
“Once [customers] are in the store, they can fill out the rest of their basket, which the store might make a higher margin on.”
Furthermore, the price of Rotisserie chicken often serves as an indicator of a consumer’s overall perception of a store’s value. In that way, it is comparable to a gallon of milk or a carton of eggs. Therefore, pricing the rotisserie chicken wrong could not only bring down the item’s sales but could have far-reaching consequences in terms of altering the perception of the overall business.
Sam’s Club is a subsidiary of Walmart, which reported a robust second quarter in 2024 with revenues of $161.6 billion, surpassing expectations. This growth is part of a broader pattern of strong performance across Walmart’s various segments, including Sam’s Club.
Little Caesars Hot-N-Ready Pizza
Little Caesars hot-n-ready pizza reached a milestone this year. In 2024, the brand is all geared up to celebrate 20 years of the legendary Hot-N-Ready products. While elaborating on why the milestone was crucial for the brand and the market per se, Greg Hamilton, Chief Marketing Officer at Little Caesars, said:
“We are thrilled to celebrate 20 years of Hot-N-Ready, a super-fast way to pizza that has not only redefined the industry but also become a beloved fixture in communities across the country.”
The fact that it has become redefining for the industry and a ‘beloved fixture’ for communities countrywide reaffirms the brand’s effective pricing. Its US$5 Hot-n-Ready pizza witnessed the first price increase in around 25 years when it started selling a ‘new and improved’ version of the recognizable pizza with 33% more pepperoni.
According to reports, despite the price increase, the pizza was still the “country’s most affordable” when compared to its competitors and their large pepperoni pizza variants. At that time, a similar-sized pizza at Domino’s or Pizza Hut was available for more than double the price, between $13 and $16, depending on the location.
Wendy’s
Let us conclude with Wendy’s as the last company on our list – a company that is not only known for its 4-for $4 meal deal but came up with an even cheaper option. Through June 4, 2023, the company offered a $3 breakfast deal, which included Wendy’s bacon or sausage, egg and Swiss croissant, and a small order of seasoned potatoes. The deal was not only available for digital customers, but customers could avail themselves of it at the counter, drive-through, online, or on the app.
While speaking about the philosophy driving the price reduction decisions, Wendy’s CEO Todd Penegor said the following during an earnings call:
“We continue to drive momentum in our U.S. breakfast business, which grew versus the third quarter and peaked at over $3,000 per restaurant per week (last quarter). This growth was driven by the continued success of our first major breakfast menu innovation, French toast sticks, and our traffic-driving $3 croissant promotion.”
According to Wendy’s admission, its 4 for $4 value meal was an idea that came as a demand from the customers who told the brand ‘that they loved Wendy’s value menu because they could build a meal that didn’t break the bank.’
However, that meal comprised two Double Stack burgers, Jr. Fries, and a Frosty for $5. Since food was becoming increasingly pricey, Wendy ventured for an even lower price: four items for four bucks. It included a Jr. Bacon Cheeseburger, 4-pc Nuggets, Small Fries, and a Small Drink, each item for $1.
The menu became an instant hit and expanded into other varieties, including eight sandwich choices, including the Double Stack and Jr. Bacon Cheeseburger, and even go-wraps to accompany nuggets, fries, and drinks.
Stock performance-wise, Wendy’s reported earnings of $0.23 per share, exceeding the consensus estimate of $0.21. During the quarter, Wendy’s earned revenue of $534.8 million, which was slightly below the anticipated $540.84 million. This represents a 1.1% increase in revenue compared to the same quarter the previous year.
Overall, pricing is not only a tool to make profits. Brands that have stood the test of time give much importance to their pricing strategies, especially when it comes to the pricing of their flagship products. Keeping low-cost staples alive and putting efforts to make affordability a priority make a company human and attractive to its customers. It helps develop an emotional bond between the customer and the brand, which then results in increased levels of loyalty towards the brand.
On another level, as we have already seen for the Chicken Rotisserie category, some items work as an audience puller for the overall brand. Once people come in, they purchase many different items, and the bucket size gets bigger, resulting in an overall improvement of the bottom line. Price schemes work as robust promotional schemes to increase footfall in a new facility. It helps build word-of-mouth traction.
However, there is a catch in all these. Reducing price as a strategy would eventually fall flat if the low-cost staple is bereft of quality. Customers look for affordability and the right value for the money they’re paying to purchase an item. Offering substandard products or services to keep the price low can prove heavily counterproductive as customers may feel cheated.
Altogether, it is about walking a tightrope. It is about striking the right balance in the price-quality dynamics. Keeping low-cost staples profitably or efficiently available requires good management of the supply chain, solving the logistical bottlenecks, and creating the right amount of buzz from time to time to keep people aware that it is still alive.
However, each of these factors would prove insufficient if there is no vision or leadership strong enough to believe in that vision. Commitment to making high-quality services or products affordable and inclusive is paramount.
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