PREMIUM SERVICE IS NOT ALWAYS INCREMENTAL
Another example is Netflix, which has essentially built an entire business (model) on service. No more trips to the store (sorry, Blockbuster). No more limits on how long you can keep DVDs. No more late fees. Return packaging and postage are included in the price. I pay $16.99 per month (including the Blu-Ray premium) for two concurrent rentals. I don’t think it’s an obscene amount of money by any stretch, especially when I compare it with the $100+ I typically pay for a crappy Saturday night movie after babysitting, stale popcorn, and tickets have been factored into account. It’s a win-win, as Netflix secures recurring revenue and a pretty impressive barrier to entry in the process.
Implications: Customers will pay a premium for higher perceived value. Charging a premium for enhanced services that offer tangible and substantial value is not necessarily going to be frowned on. It might even be embraced. If there’s one thing that’s in really short supply today, it’s time, and when we can save our customers time, who knows—maybe there’s some money in it for us. At times, you might want to bundle in a premium service to your most valuable customers as a perk, whereas at other times, your power users may very well want to ante up for key services.