What drove Jio Cinema to make a significant price reduction? π€
Jio Cinema recently set its monthly subscription price at Rs 29. But why so low? π€ Jio Cinema uses a classic Penetration Pricing Strategy to capture market share rapidly.
What is Penetration Pricing?
Penetration pricing involves setting an initially low price to attract customers and quickly gain market share. The aim is to entice customers to build market share and retain these customers by creating habits that are hard to reverse even when π©π«π’πππ¬ π«π’π¬π ππ¨ π‘π’π π‘ππ« π₯ππ―ππ₯π¬. This is also referred to as loss leader pricing.
Why Now?
Jio used a similar approach when launching Jio Telecom. They disrupted the market, eliminated much of the competition, and raised prices. Users, now accustomed to high-speed internet, are unlikely to switch back, ensuring they continue to pay the higher prices.
But why now? There are two reasons:
First, Jio Cinema now offers top-tier content to foster daily habits. With sports content (IPL), popular kids' shows (Voot & Disney), and top daily dramas and movies (Viacom), Jio knows this product and content combination can build lasting daily habits.
Second, Jio Cinema already has a large number of freemium users accessing it daily due to the IPL. By reducing the price, Jio Cinema aims to convert these millions of users into recurring subscribers. Once the IPL ends, its DAU will drop significantly, and Jio Cinema will need to invest additional resources to raise awareness about the Rs 29 plan. Launching this offering mid-IPL addresses the awareness issue effectively.
How competitors will respond?
By setting the price at Rs 29, Jio Cinema avoids potential π©π«π’ππ π°ππ«π¬. Had they priced it at, say, Rs 59, competitors might have retaliated, leading to an endless cycle of price reductions. Now, competitors are unlikely to respond with price cuts. Instead, they will focus on creating differentiating valueβa tough challenge since anything they do well will likely be copied.
Only companies with significant financial resources can afford this strategy at this scale. π°
P.S: Netflix also adopted a similar strategy to acquire paying users and now is raising pricing every few quarters. π
Does penetration pricing works for you?
This strategy can be tested if the following conditions are met:
- You have a large base of freemium users engaging with your product daily who have not yet transitioned to a paid plan.
- You are confident that you will not enter a price war with your competitors, and they will not retaliate by lowering their prices further.
- You can maintain these low prices for an extended period (6 months to 1 year) without panic.
- Your product has a high engagement and has a potential to induce a irreversible habit.
If you have everything mentioned above, you can use platforms like SurgeGrowth to test and implement penetration pricing.
The optimal penetration price should be the highest price at which you achieve the threshold conversion rate you have defined for success. In the chart below, $3 is the highest price at which the threshold conversion rate of 15% is achieved. Increasing the price further lowers the conversion rate.
Want to learn more about how you can run penetration pricing test? Schedule a demo call today.
