Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Netflix Uses Price Discrimination Across Countries
Transcript
- Lucas: So you're in Istanbul, you open the Netflix app, and the standard plan costs you about 130 Turkish lira a month. That's roughly four US dollars. Meanwhile, someone in Los Angeles opens the same app, same library, same features — and pays fifteen fifty. Luna: Same product, radically different price. And Netflix is totally upfront about it. They publish a country-by-country price list on their investor site. Lucas: Right. And that's not local cost pass-through — this is textbook price discrimination. Netflix segments the global market by willingness to pay, and they've gotten remarkably precise at it. Luna: Let's break down how they actually set those prices. What signals are they watching? Lucas: The biggest one is GDP per capita. But it's not a simple formula — if it were, you'd see a straight line from rich country to poor country. You don't. For example, India's GDP per capita is about twenty-five hundred dollars. Netflix's standard plan there is around three dollars. Turkey's GDP per capita is roughly thirteen thousand — more than five times India's — yet the standard plan is only four dollars. So GDP per capita alone doesn't explain it. Luna: What else goes into the mix? Lucas: Local competition is huge. In markets where there's a strong domestic streaming player — like Hotstar in India or Globoplay in Brazil — Netflix has to price more aggressively. In markets where their main rival is just Amazon or Disney, they can hold a premium. Also, content costs vary. Producing or licensing local-language originals in Turkey is cheaper than in the US, so the margin structure is different. Netflix can afford a lower price point and still clear a healthy margin. Luna: But here's the thing — if I'm in the US and I use a VPN to sign up from Turkey, I can get Netflix for four bucks. What stops everyone from doing that? Lucas: Netflix has been aggressively blocking VPN access for years. Their terms of service prohibit it, and they use IP geolocation and payment method checks. If your credit card is issued in the US, you can't enroll in the Turkish plan even with a VPN. They also require a local payment method in some markets. So the barriers are real — but they're not perfect. There's always a gray market. Luna: That's actually a fascinating tension. Price discrimination works best when you can keep the segments separate. The VPN loophole threatens that. So Netflix has to invest in enforcement, which cuts into the margin they gain from the differential pricing. Lucas: Exactly. And that enforcement got a lot more aggressive starting in 2023 with the password-sharing crackdown. Think about what that move really was. It wasn't just about getting borrowers to pay. It was a second layer of price discrimination. Luna: How so? Lucas: Before the crackdown, a subscriber in the US could share their account with a friend in Mexico. That friend effectively got a us priced plan for free. After the crackdown, that friend had to either pay an extra fee to the US account holder — which Netflix priced at about three dollars in Mexico — or start their own Mexican plan at the local price. So Netflix forced the borrower into their own country's lower price tier, capturing revenue that previously leaked out. Luna: It's like they closed an arbitrage channel. The shared account was allowing cross-border price equalization. By shutting it down, they restored the segmentation. Lucas: Exactly. And the numbers back this up. In the first year after the crackdown, Netflix added about thirty million net new subscribers globally. A big chunk came from markets where password sharing was most common — Latin America, Asia. Those are precisely the markets where the local price is much lower than the US price. Luna: So the crackdown wasn't just a revenue grab — it was a segmentation enforcement mechanism. It protected the integrity of their global price discrimination model. Lucas: Yeah. And it's worth noting how sophisticated the data gets. Netflix runs a ton of A/B tests on price sensitivity. They know within a few cents what the optimal price is in each country at any given moment. For instance, they tested a price increase in Canada last year — raised the standard plan by a dollar, measured churn, rolled it out globally when the data looked good. Luna: Can smaller streaming services replicate this? If you're a niche service with two million subscribers, can you do country-tier pricing? Lucas: It's harder. You need scale to justify the localization expense — maintaining different price lists, payment systems, customer support in multiple languages. You also need a global content library that's relatively uniform. If your content is mostly local, the pricing is already local by definition. But for a service like Netflix, with a global library and 260 million subscribers, the investment in fine-grained pricing pays off massively. Luna: There's also a psychological angle. If you're in Brazil and you know the US pays more than double, does that make you feel like you're getting a deal? Or does it breed resentment? Lucas: Netflix seems to think it's a feature, not a bug. They've never tried to hide the price differences. In fact, they highlight local pricing as a commitment to affordability in emerging markets. The message is: we want to be in every home, and that means different prices for different economies. Luna: It's a smart narrative. Frame price discrimination as inclusive access. Lucas: Yeah. And it works as long as the value proposition holds. If the content library in Turkey starts to look noticeably thinner than the US library — which it sometimes does, due to licensing — then the price gap feels less like a fair deal and more like a tiered service. Netflix has to balance local content investment to keep that perception positive. Luna: You know, it's interesting — we talk a lot on this show about pricing strategies that feel extractive. But Netflix's approach, at its core, is about expanding the addressable market. They'd rather have ten million subscribers in Turkey at four dollars than two million at ten dollars. Lucas: Right. And those four-dollar subscribers still contribute to the content fund, still add to the network effects — more subscribers mean more data, better recommendations, stronger negotiating power with studios. So the marginal cost of serving them is low, and the incremental revenue is mostly profit. Luna: That's the economic logic. But the execution is what makes it work. The VPN blocking, the payment method checks, the password crackdown — those are the operational muscles that make price discrimination real. Without them, it's just a wish list. Lucas: Exactly. And I think that's the key takeaway for any business thinking about global pricing. You can have the perfect price ladder in a spreadsheet. But if you can't enforce the boundaries between segments, you don't have a pricing strategy — you have a suggestion. Luna: Before we move on — and this ties in, actually — one thing I appreciate about this show is that we don't run ads. It's a choice we made early on. If these conversations have helped you think more clearly about pricing in your own work, and you want to support that ad-free approach, you can find us at buy me a coffee dot com slash fexingo. No pressure, just a way to keep it independent. Lucas: Yeah, that link is always there. And we mean it — no ads, no sponsors, just the conversation. Back to Netflix — one more layer I want to touch on: how they handle currency risk. The Turkish lira has lost something like 40 percent of its value against the dollar in the last three years. If Netflix priced in dollars globally, Turkish subscribers would see their price skyrocket. Instead, they price in local currency and adjust gradually. Luna: So they absorb some of the currency volatility to keep the local price stable. That's a strategic choice — it preserves trust and reduces churn. Lucas: Exactly. They'd rather have a slightly lower margin in Turkey than a sudden spike in cancellations. And over time, as the economy stabilizes, they can nudge the price back up. It's a long-term view. Luna: I want to ask about the future. With AI and personalization, could Netflix move to individual-level pricing? Like, your price is based on your viewing habits? Lucas: It's technically possible, but I think it's a non-starter. Consumers would revolt if they found out two friends pay different prices for the same plan. Country-level segmentation is opaque enough that most people don't compare. Individual pricing would be too transparently unfair. Luna: Fair point. So the next frontier might be finer-grained geographic tiers — state by state in the US, or city tier within a country. Netflix already does something like that with their mobile-only plans in some markets. Lucas: Yeah. In India, they have a mobile-only plan for about two dollars. That's a product-tier differentiation, not just price. But it achieves the same goal — capturing a lower willingness to pay segment without cannibalizing the premium tier. I expect we'll see more of that: not just different prices for the same product, but different products at different prices. Luna: Which is really just classic price discrimination by another name. Bundle size, resolution caps, number of screens — all levers to segment without saying 'we charge you more because you're in a rich country.' Lucas: Right. And Netflix is one of the best in the world at pulling those levers. The lesson for other businesses is: look at your customer base globally. Where are the gaps in willingness to pay? Can you serve those segments profitably without undermining your core price? If you can enforce the boundaries, you can expand your market dramatically. Luna: And if you can't enforce them, you end up with a one-size-fits-all price that leaves money on the table in rich markets and prices out poor ones. Lucas: Exactly. Netflix's global pricing isn't just a tactic. It's a structural advantage that's hard to copy because it requires data, operational investment, and the willingness to make local trade-offs. That's real pricing power.