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The Stash EdgeISABELLA'S ISLAYSeptember 17, 20263 min readAd-free
Netflix grew to 231 million paid subscribers by segmenting one product into three price tiers
Bundled pricing tiers with an ad-supported option unlocked broader market capture without diluting the premium offer.
Jenny Huang Goodman MPA MSc MHSAThe Stash Edge · Huang GoodmanSource: Business of Apps ↗
In plain words
One product, three prices: capture budget buyers without leaving margin on the table from high-intent customers.
231 million
paid subscribers by running three subscription tiers instead of…
63 percent
below the premium option
30 to 40 percent
below your current single-SKU price
40 to 60 percent
above the base
Netflix reached 231 million paid subscribers by running three subscription tiers instead of one, according to Business of Apps. The move: a $6.99 ad-supported plan, a $15.49 standard plan, and a $19.99 premium plan. Each tier delivers the same core product — streaming access — but segments on price sensitivity and ad tolerance. The result is revenue capture across income bands without forcing a single compromise.
The mechanics are straightforward. Netflix introduced the ad-supported tier in late 2022, pricing it 63 percent below the premium option. The tier delivers full catalog access but includes pre-roll and mid-roll ads. The standard tier sits in the middle, ad-free but capped at two screens. Premium removes the screen limit and adds 4K. The tiers are not feature gates — they are willingness-to-pay gates. A user who cannot afford $20 stays in the ecosystem at $7. A user who values ad-free experience pays the spread.
The underlying mechanism is price discrimination without market fragmentation. Netflix did not create three different products. It created three ways to pay for the same catalog. The ad tier monetizes users who would otherwise churn or never subscribe. The premium tier extracts maximum revenue from power users. The standard tier captures the middle without cannibalizing either end. The brand avoids the trap of a single price point that either excludes budget-conscious users or leaves revenue on the table from high-intent buyers.
This works in physical products the same way. A brand selling a single SKU at a single price leaves money on the counter. The customer who wants the product but balks at $50 walks. The customer who would pay $80 pays $50. Bundled tiers solve both. Offer the core product at three price points: a base version, a standard bundle, and a premium kit. The base version strips optional add-ons but delivers the hero product. The premium version adds accessories, expedited shipping, or a second unit. The tiers share the same core manufacturing cost but segment on margin and perceived value.
For a small brand, the steal runs like this. Start with your hero SKU and identify two natural breakpoints. The low tier removes non-essential extras — packaging, a secondary item, or a service layer. Price it 30 to 40 percent below your current single-SKU price. The high tier bundles the product with a complementary item, a subscription refill, or a premium unboxing experience. Price it 40 to 60 percent above the base. Launch all three tiers on your product page as radio buttons, not separate listings. Label them clearly: Essential, Standard, Premium. Default to Standard. Track conversion by tier for 30 days, then adjust pricing or bundling based on volume distribution. The goal is not equal distribution — it is maximizing total revenue per visitor without losing the budget buyer.
The cost to execute is minimal. You are not creating new inventory from scratch — you are repackaging existing components. A brand selling candles bundles three units instead of one for the premium tier. A brand selling supplements offers a 30-day supply at base, 60-day at standard, 90-day with a storage tin at premium. The manufacturing cost per unit drops as volume increases, so the premium tier often carries higher margin than the base despite the lower per-unit price. The ad-supported model translates directly: offer a lower price in exchange for a brand concession — slower shipping, no gift box, or inclusion in a sampling program. The customer self-selects based on budget and urgency.
The broader pattern here is that a single price point is a single-threaded revenue model. Netflix did not grow to 231 million subscribers by asking every user to pay the same amount. It grew by offering every user a way to pay what they can. Physical product brands that refuse to tier their pricing are turning away customers at both ends of the demand curve. The play is not to complicate the line — it is to let the customer choose their own margin.
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