When Netflix raised prices and split its subscription into DVD and streaming in 2011...

Managers followed simple logic: costs are higher, value has increased, the audience is loyal—they'll pay up.

It all added up in Excel.

But in reality, people perceived it as unfair...

And voilà!

Minus 800,000 subscribers in a quarter. The stock price collapsed nearly fourfold.

The CEO wrote public apologies.

This story isn't about greed. It's about how easy it is to miss the psychological corridor of acceptable prices.

(even with a strong product and brand)

So

If you're launching a new product/feature
(or planning to raise your current price)

The task is the same—not to guess the magic number, but to assess and understand two things:

1) Where the price is still okay for customers
(commensurate with the product's value)

2) Where resistance and doubts kick in
(read: "it feels like they're just milking us")

One of the simplest tools to start with is the Price Sensitivity Meter, Van Westendorp's method.

It doesn't give you the perfect price
But it helps outline a reasonable corridor

How does it work?

The essence is to ask real people from your target audience four questions:

At what price would you start doubting the quality because the product seems too cheap?

At what price does the product seem like a really good deal?

At what price does it seem expensive, but you'd still be willing to buy?

At what price is it unacceptably expensive, and you definitely wouldn't buy?


Important!

- Don't ask colleagues or friends
- Don't suggest price options
- Don't mix segments

(small business and enterprise will give different corridors)

You've surveyed, collected answers, what's next...

Next, you build a chart:
On the X-axis, plot the prices mentioned by respondents

On the Y-axis, plot the proportion of people who mentioned those prices for each question


On one chart, you get 4 curves—that's where the magic is!

Where the curves intersect—that's where your price ranges are:
For example,

Optimal Price Point (OPP)

This is the intersection of the "too cheap" and "too expensive" curves.

It's called "optimal" not in terms of profit impact, but because it causes the least internal resistance among customers.

In other words, this price is neither too low (raising suspicions about product quality) nor excessively high (making it easier to forgo the purchase).

Simply put: OPP is the price at which the majority of your target audience is least likely to reject your product from the start.

Indifference Price Point (IPP)

This is the intersection of the "inexpensive" and "expensive" curves. At this price, roughly equal numbers of people say the product is rather cheap and rather expensive.

That is, IPP reflects a balance in price perception: the purchase doesn't feel like a clear bargain nor a clear overpayment.

Simply put: IPP is a benchmark for a "fair price" (after discounts and negotiations) and an understanding of where the customer's psychological price anchor might be.


By analyzing the 4 curves and their intersections, you start not from "intuition and experience" but from data.

You then align the obtained prices with unit economics, competitors, and your strategy.

And you significantly reduce the chance of repeating Netflix's 2011 experience.

Give it a try!

And support with a reaction if the content resonates.