Key Takeaways

• Grandfathering is a concession, not a contract. The vendor can withdraw it, which makes the exit riskier than the grant.

• The expiry date is the design decision. Netflix stated two years in Ireland in January 2014 and one year on its US HD plan in October 2015.

• Ending it costs more than the affected accounts. Netflix's Q2 2016 net additions hit 1.68 million against a 2.5 million forecast, on churn that started with the announcement.

• The carrying cost is the price gap times the legacy base times every billing period, and it never appears as a line item.

How does grandfathering work in practice?

Grandfathering works by splitting the base on signup date. New signups pay the new price immediately, and existing accounts stay tagged to the prior rate until a stated date.

These decisions get locked at announcement and are hard to revisit:

Pricing changes rarely break at the pricing layer. They break in proration, mid-cycle invoices and reconciliation, which our write-up on grandfathering covers.

What does grandfathering cost you?

Grandfathering costs you the price gap on every legacy account, every period, plus the churn you take when you stop absorbing it.

Netflix raised its US HD plan to $9.99 in October 2015, held existing members at $8.99 for a year, then began un-grandfathering longer-tenured members in 2016. Its Q2 2016 shareholder letter reports 1.68 million net additions against a 2.5 million forecast and 3.28 million a year earlier, and pins the miss on churn that rose with the early-April press coverage, though churn among members actually repriced was, in its words, modest.

The cost lands where it doesn't look like pricing:

• Suppressed revenue per account, which drags growth without appearing as contraction MRR

• Engineering load from running retired rate cards next to current ones

• A churn spike on the announcement, from customers who'll never be repriced

When should you end a grandfathered plan?

End a grandfathered plan on the date you set at announcement, and tell customers before you charge them. A protection with no stated expiry becomes an entitlement customers defend.

Signals worth acting on:

• The stated term expires, the only clean reason and the one to engineer for

• The legacy rate stops covering delivery cost once the plan has changed shape

• The old plan blocks a packaging change across subscription pricing models

Sequence the announcement ahead of the first changed invoice. Netflix's churn landed on the news, not on the charge.

Related terms

Each of these covers a piece of the price-change problem grandfathering sits inside.

• Subscription Pricing Models sets out the plan structures a legacy rate freezes in place.

• Hybrid Pricing Model explains the mixed structures that make legacy plans hardest to retire.

• Billing Cycle defines the period boundary a repricing has to land on.

• Contraction MRR is where a legacy discount shows up in revenue reporting.

• Churn Rate measures the cost of ending a grandfathered plan badly.

• Good-Better-Best Pricing describes the tier ladder customers get frozen onto when a price change lands.

FAQ

Is grandfathering the same as a price lock?

No. A price lock is a contract term the customer can enforce. Grandfathering is a concession the vendor grants on its own and can withdraw, which is why vendors state an expiry up front.

How long should grandfathering last?

One to two years is the range public vendors have used. Netflix granted two years in Ireland from January 2014 and one year on its US HD plan from October 2015.

Can you grandfather a feature instead of a price?

Yes. Holding a retired feature for existing accounts applies the same mechanism to entitlements rather than rates. It's harder to unwind, because the customer built a workflow on it rather than a budget line.

Does grandfathering work with usage-based pricing?

Yes, by freezing the rate card rather than a flat fee. Legacy accounts keep the old per-unit rates and allowances, so you run both rate cards until the legacy set retires.