Netflix and Chasing Customer Share of Wallet

Here is a rudimentary definition of share of wallet:

Money spent on a product divided by a total amount spent in that product category

Let's say that a person consumes media with the following channels:

• AM/FM Radio (free)
• Satellite radio $16.99/mo - $21.99/mo via SiriusXM
• Podcast subscriptions ($4-5.49/podcast/month)
• Audio books subscription $7.95-$14.95/mo via Audible
• Television (basic broadcast channels are mostly free with ads)
• Satellite TV - DIRECTV ($64.99–$154.99/mo), DISH ($79.99–$109.99/mo)
• Amazon Prime Video (14.99/mo or $139/yr)
• Print newspaper, $520/yr NY Times (full experience, daily print Mo-Su); sad, LA Times does not have this service for my zip code; local newspaper daily digital + print Sunday ($25/mo); the other local newspaper $21-26/mo daily digital + print Sunday
• Print magazine, avg $20/magazine/year (excluding luxury magazines)

The affluent consumer likely subscribes to more than one content service and probably spends more than $500/year on the media-as-entertainment category. Amazon Prime Video's wallet share of the above scenario is 27.8%. It's really hard for other streaming services to compete with Amazon's business model, since Prime Video is a feature of Amazon's Prime service not its core reason for existing. Everyone else is just a one-trick pony.

Consumers are subscribed to multiple services. The average US consumer subscribes to 12 paid subscriptions spread across videos, music, gaming, news, food delivery, and other entertainment. Netflix raising its prices shouldn't be that big of an issue. Is it?

$199 is the new $249

Just a couple years ago, $249 was the magical number that a consumer could purchase any product for themselves without having to justify the expense to their significant other, spouse, or household budget. Whenever I see manufacturers conforming new products to a specific price point, I have to wonder if they are looking at just the short term benefits for the price cut or at the long tail benefits of having the product out in the market.

US Oil Consumption and GDP

The price of gas is climbing towards $5/gallon in the US and it's making all of us consumers leery about commuting to work, driving between places for vacation, or consolidating food runs to the grocery store. Here's an interesting graph about oil consumption and GDP.

Source: US Department of Energy, US Bureau of Economic Analysis, Thomson Reuters

The chart suggests that the rising price of oil isn't having much of an impact on continued economic expansion, at least according to analyst Theodore Gilliland of Fisher Investments.

Global Agriculture and the Rising Cost of Food

Artificial shortages, increased consumption, weather-based crop destruction, and rising prices of raw materials can be seen throughout the US and the global economy, especially with civil and political unrest on the rise in the news. NPR recently published an article about rising food prices, but what it doesn't tell you is that there has also been a global decrease in food production.

Let's look at wheat production.

Abdolreza Abbassian, senior economist at the FAO, predicts that wheat prices may keep rising until the summer because importers are speeding up purchases to outrun inflation. Prices are more likely to stay high or go higher in the next six months than decline. (Source: Businessweek) That's right, countries are hoarding wheat and a few have already banned exports of their domestic wheat.

Market Factors:

As for US consumers of wheat products, since we're able to procure wheat from a multitude of domestic and foreign sources, we'll probably not notice the price shift, nor the inflation that it is bound to come with it.

See also:
Pooley, E. and Revzin, P. "Hungry for a Solution", Businessweek, 2/21-2/27/2011, p. 7-9

Retail Value of Chocolate

I debated about which blog to post this to, but since it deals more with pricing than with food, I'll post it here.

You need a sunny, cloudless day to make toffee (or caramel) because any inclusion of moisture in the pan will cause the sugar to recrystalize and the toffee won't set. Because it is so humid here, even on our driest days, it's really hard to make your own chocolate-covered toffee from the basic ingredients. You're much better off making butterscotch since it's a far more forgiving recipe. Although, that flavor seems to be pretty unpopular out here too. As far as retail prices go, Heath and Trader Joe's are priced about the same, although Heath is mass produced and Trader Joe's is probably made the same, but the pieces are served up in a plastic tub and not individually wrapped. I like the latter because the bars keep fresher longer in the fridge. Mini Heaths are about 1/3 the size of a regular Heath bar, what consumer know as "fun size" or "snack size".


At retail, pricing kinda looks like this:


a regular sized Heath bar, 1.4 oz, $0.50/bar ($0.36/oz)
a bag of mini Heath bars, 11 oz, roughly $2.50-$3.00/bag, ~ $0.23/oz
a bag of milk chocolate Dove, 9.5 oz, $4/bag (rarely on sale), $0.42/oz
a "tub" of Trader Joes English toffee bars, 8 oz, $4, ~$0.50/oz
a regular Toblerone bar, 3.5 oz, about $2.50-$3.00/bar, ~$0.71/oz

By inexpensive, I meant to say that it's a good quality chocolate for eating and that procuring it for purely creature comforts is easy to do. Cheap, on the other hand, would be an adjective I'd apply to just about everything made by Nestle, World's Finest Chocolate, or to some extent Hersheys. And, in that regard, I'm not talking about price, but the quality of the ingredients that went into their chocolate candies. There's a definite lack of taste when cocoa butter and chocolate liquor isn't used in a chocolate confection. Nestle, for example, compensates by increasing the amount of sugar in the recipe, so much that it tastes more like sugar than chocolate.
Let's put pricing into more context for the "higher end" stuff...

Scharffen Berger, milk or dark chocolate bar, 3oz, $4/bar ($1.33/oz)
Godiva milk chocolate bar, 1.5 oz, $3.50-$5.00/bar ($2.33/oz)
Lindt, milk or dark chocolate bar, 3.5 oz, $1.50-$2.00/bar ($0.43.oz)
Green & Black organic dark chocolate bar, 3 oz, $4/bar ($1.33/oz)
Whole Foods "Everyday Value brand" organic milk chocolate bar, 3 oz, $2-$3 ($0.67/oz)
Trader Joe's milk or dark chocolate bar, 1.75 oz, $0.50/bar ($0.29/oz)

How about a custom confection shop like the Rocky Mountain Chocolate Factory (a west coast chain store), chocolate confections are about $25/lb (or $1.56/oz)

This is almost like the argument for how much a cup of tea costs. One of my projects at the undergrad level was to create a business plan for a cybercafe. But, the value and taste that I get from eating certain types of chocolate.. am I more or less willing to fork out money for it? Depends on the quality of the chocolate recipe than the brand that promotes it. It's why I have never bought Godiva, whose core business strategy is to sell high-end imported chocolate at a very high retail price. It's a perceived worth, an intangible, just like how goodwill is listed as an asset on a company's financial statements.