Why NBC’s Peacock Is Poised To Ruffle Some Feathers

It’s not just the content, expert says, it’s the pricing model

Jan 22, 2020
Marketing

SMITH BRAIN TRUST  NBCUniversal isn’t worried about ruffling a few feathers. In fact, it’s hoping to.

The company, a subsidiary of Comcast Corp., is set to launch its Peacock streaming service this summer, and recently announced a multitiered pricing strategy that includes free and subscription options, as it looks to undercut rivals and set its offering apart in an increasingly crowded field.

Already, Peacock is drawing attention, says P.K. Kannan, the Dean’s Chair in Marketing Science at the University of Maryland’s Robert H. Smith School of Business.

Kannan spoke recently to Fortune Magazine about the streaming crowd, noting, "Hulu is an outlet for content makers who don't have their own streaming service. But now that all these content producers have their own streaming service, why do they need a middle man?

"In the streaming wars, the people who produce content have the power."

The company plans to make Peacock available to Comcast cable customers, beginning April 15, and to non-Comcasters, beginning July 15.

“It is the latest entrant to the crowded field and they have an interesting pricing strategy – freemium,” says Kannan, who has extensively researched freemium-to-premium pricing tactics.

The company is proposing three price strategies – shrewdly, according to Kannan’s research. There’s a totally free version with advertisements, limited content and selected episodes of popular series. There’s a mid-tier option that offers all the content, with commercials, for $4.99 a month. And there’s a premium option that offers all the content with no ads, for $9.99 a month.

“This is very smart strategy,” Kannan says.

Here’s why. Peacock’s rival streaming services are all priced similarly, but none yet have adopted this kind of freemium model. “The only way customers can experience how these competitive services are is through free trial for a limited period – typically 15 days or a month,” Kannan says.

But, with Peacock, customers can use the free streaming service with no time limit, experiencing and sampling the content and moving up to the premium services if they like what they see. That’s savvy, he says, particularly because Peacock is a late entrant to the market.

“Many customers have already signed up with other services, and it might not be easy to attract them and make them switch with a regular free trial model offer,” Kannan says. “A free service provides easy entry for customers to experience and sample Peacock’s content and migrate to the Peacock’s premium options.”

It’s also savvy because Peacock isn’t providing just one premium option – it’s offering two premium levels.

Kannan’s research, Selling the Premium in Freemium, published last year in the Journal of Marketing, shows that a two-tiered premium strategy is more effective in luring customers from a free service to a paid one – the lower-tier premium option benefits due to what’s known as a compromise effect.

For Peacock, that means that having the premium offering with no ads at $9.99 is likely to make the middle option of $4.99 more attractive, beckoning free users up to the middle option.

Read more: "Selling the Premium in Freemium" is published in the Journal of Marketing. And "How Companies Can Get the Most Out of a Freemium Business Model" is published in Harvard Business Review.

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About the Expert(s)

P. K. Kannan

P. K. Kannan is the Dean's Chair in Marketing Science at the Robert H. Smith School of Business at the University of Maryland. His main research focus is on marketing modeling, applying statistical and econometric methods to marketing data. His current research stream focuses on attribution modeling, media mix modeling, new product/service development and customer relationship management (CRM).

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