IDEAS home Printed from https://ideas.repec.org/a/eee/jbrese/v182y2024ics0148296324003084.html
   My bibliography  Save this article

Pay today, or delay the pay: Consumer preference for double flat-rate pricing plans

Author

Listed:
  • Schuster, Emanuel
  • Spann, Martin

Abstract

Double flat-rate pricing plans are a pricing strategy used in a variety of industries, including digital add-on services for durable products. These pricing plans consist of two distinct components: a nonrecurring flat rate and a recurring flat rate. A nonrecurring flat rate consists of a one-time, initial, nonrecurring provisioning fee. A recurring flat rate is a recurring (usually monthly) subscription fee that entitles consumers to unlimited access to the service without additional usage-based charges. While previous research has extensively studied single flat-rate pricing plans, consumer preference for double flat-rate pricing plans compared to single flat-rate plans has not yet been studied. We conduct two discrete choice experiments for utilitarian products in different industries and find that—contrary to the increasing use of double flat-rate pricing plans—consumers tend to prefer single flat-rate plans. Moreover, we find substantial preference heterogeneity for the two pricing plan components. Nonrecurring flat-rate fees have a greater influence on consumer choice than recurring flat-rate fees. We discuss the theoretical implications for behavioral pricing and consumers’ tariff choice decisions, as well as the managerial implications for firms’ pricing menu decisions.

Suggested Citation

  • Schuster, Emanuel & Spann, Martin, 2024. "Pay today, or delay the pay: Consumer preference for double flat-rate pricing plans," Journal of Business Research, Elsevier, vol. 182(C).
  • Handle: RePEc:eee:jbrese:v:182:y:2024:i:c:s0148296324003084
    DOI: 10.1016/j.jbusres.2024.114804
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0148296324003084
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jbusres.2024.114804?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March.
    2. Homburg, Christian & Totzek, Dirk & Krämer, Melanie, 2014. "How price complexity takes its toll: The neglected role of a simplicity bias and fairness in price evaluations," Journal of Business Research, Elsevier, vol. 67(6), pages 1114-1122.
    3. Rabin, Matthew, 2002. "A perspective on psychology and economics," European Economic Review, Elsevier, vol. 46(4-5), pages 657-685, May.
    4. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    5. Greg Allenby & Jeff Brazell & John Howell & Peter Rossi, 2014. "Economic valuation of product features," Quantitative Marketing and Economics (QME), Springer, vol. 12(4), pages 421-456, December.
    6. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
    7. Madina, Carlos & Zamora, Inmaculada & Zabala, Eduardo, 2016. "Methodology for assessing electric vehicle charging infrastructure business models," Energy Policy, Elsevier, vol. 89(C), pages 284-293.
    8. Krämer, Jan & Wiewiorra, Lukas, 2012. "Beyond the flat rate bias: The flexibility effect in tariff choice," Telecommunications Policy, Elsevier, vol. 36(1), pages 29-39.
    9. Kenneth E. Train & Daniel L. McFadden & Moshe Ben-Akiva, 1987. "The Demand for Local Telephone Service: A Fully Discrete Model of Residential Calling Patterns and Service Choices," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 109-123, Spring.
    10. Raghuram Iyengar & Kamel Jedidi & Skander Essegaier & Peter J. Danaher, 2011. "The Impact of Tariff Structure on Customer Retention, Usage, and Profitability of Access Services," Marketing Science, INFORMS, vol. 30(5), pages 820-836, September.
    11. Kristina Shampanier & Nina Mazar & Dan Ariely, 2007. "Zero as a Special Price: The True Value of Free Products," Marketing Science, INFORMS, vol. 26(6), pages 742-757, 11-12.
    12. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    13. Drazen Prelec & George Loewenstein, 1998. "The Red and the Black: Mental Accounting of Savings and Debt," Marketing Science, INFORMS, vol. 17(1), pages 4-28.
    14. Schulz, Fabian & Schlereth, Christian & Mazar, Nina & Skiera, Bernd, 2015. "Advance payment systems: Paying too much today and being satisfied tomorrow," International Journal of Research in Marketing, Elsevier, vol. 32(3), pages 238-250.
    15. Schlereth, Christian & Skiera, Bernd, 2012. "Measurement of consumer preferences for bucket pricing plans with different service attributes," International Journal of Research in Marketing, Elsevier, vol. 29(2), pages 167-180.
    16. Hoffman, K. Douglas & Turley, L. W. & Kelley, Scott W., 2002. "Pricing retail services," Journal of Business Research, Elsevier, vol. 55(12), pages 1015-1023, December.
    17. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    18. Heath, Chip & Soll, Jack B, 1996. "Mental Budgeting and Consumer Decisions," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 23(1), pages 40-52, June.
    19. George Loewenstein & Drazen Prelec, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 573-597.
    20. Kley, Fabian & Lerch, Christian & Dallinger, David, 2011. "New business models for electric cars--A holistic approach," Energy Policy, Elsevier, vol. 39(6), pages 3392-3403, June.
    21. Dowling, Katharina & Manchanda, Puneet & Spann, Martin, 2021. "The existence and persistence of the pay-per-use bias in car sharing services," International Journal of Research in Marketing, Elsevier, vol. 38(2), pages 329-342.
    22. Stefano DellaVigna & Ulrike Malmendier, 2006. "Paying Not to Go to the Gym," American Economic Review, American Economic Association, vol. 96(3), pages 694-719, June.
    23. Currim, Imran S & Weinberg, Charles B & Wittink, Dick R, 1981. "Design of Subscription Programs for a Performing Arts Series," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 8(1), pages 67-75, June.
    24. Klaus Wertenbroch, 1998. "Consumption Self-Control by Rationing Purchase Quantities of Virtue and Vice," Marketing Science, INFORMS, vol. 17(4), pages 317-337.
    25. Stefano DellaVigna & Ulrike Malmendier, 2004. "Contract Design and Self-Control: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 353-402.
    26. Fleura Bardhi & Giana M. Eckhardt, 2012. "Access-Based Consumption: The Case of Car Sharing," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 39(4), pages 881-898.
    27. Hinz, Oliver & Schlereth, Christian & Zhou, Wenyan, 2015. "Fostering the Adoption of Electric Vehicles by Providing Complementary Mobility Services: A Two-Step Approach using Best-Worst Scaling and Dual Response," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 77138, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    28. Robin L. Soster & Andrew D. Gershoff & William O. Bearden, 2014. "The Bottom Dollar Effect: The Influence of Spending to Zero on Pain of Payment and Satisfaction," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 41(3), pages 656-677.
    29. Brown,Stephen J. & Sibley,David Sumner, 1986. "The Theory of Public Utility Pricing," Cambridge Books, Cambridge University Press, number 9780521314008, November.
    30. Anja Lambrecht & Katja Seim & Bernd Skiera, 2007. "Does Uncertainty Matter? Consumer Behavior Under Three-Part Tariffs," Marketing Science, INFORMS, vol. 26(5), pages 698-710, 09-10.
    31. Eugenio J. Miravete, 2003. "Choosing the Wrong Calling Plan? Ignorance and Learning," American Economic Review, American Economic Association, vol. 93(1), pages 297-310, March.
    32. Shuo Zhang & Tat Y. Chan & Xueming Luo & Xiaoyi Wang, 2022. "Time-Inconsistent Preferences and Strategic Self-Control in Digital Content Consumption," Marketing Science, INFORMS, vol. 41(3), pages 616-636, May.
    33. Sandor Czellar & D. Sprott & E. Spangenberg, 2009. "The Importance of a General Measure of Brand Engagement on Market Behavior: Development and Validation of a Scale," Post-Print hal-00458392, HAL.
    34. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    35. Schroeder, Andreas & Traber, Thure, 2012. "The economics of fast charging infrastructure for electric vehicles," Energy Policy, Elsevier, vol. 43(C), pages 136-144.
    36. Jan Becker & Martin Spann & Timo Schulze, 2015. "Implications of minimum contract durations on customer retention," Marketing Letters, Springer, vol. 26(4), pages 579-592, December.
    37. Train, Kenneth E & Ben-Akiva, Moshe & Atherton, Terry, 1989. "Consumption Patterns and Self-selecting Tariffs," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 62-73, February.
    38. Paul A. Samuelson, 1937. "A Note on Measurement of Utility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 4(2), pages 155-161.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Teck H. Ho & Noah Lim & Colin Camerer, 2005. "Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics," Levine's Bibliography 784828000000000476, UCLA Department of Economics.
    2. Stephen Leider & Özge Şahin, 2014. "Contracts, Biases, and Consumption of Access Services," Management Science, INFORMS, vol. 60(9), pages 2198-2222, September.
    3. Cameron Hepburn & Stephen Duncan & Antonis Papachristodoulou, 2010. "Behavioural Economics, Hyperbolic Discounting and Environmental Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 46(2), pages 189-206, June.
    4. Committee, Nobel Prize, 2017. "Richard H. Thaler: Integrating Economics with Psychology," Nobel Prize in Economics documents 2017-1, Nobel Prize Committee.
    5. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    6. Katharina Dowling & Daniel Guhl & Daniel Klapper & Martin Spann & Lucas Stich & Narine Yegoryan, 2020. "Behavioral biases in marketing," Journal of the Academy of Marketing Science, Springer, vol. 48(3), pages 449-477, May.
    7. Milkman, Katherine L. & Beshears, John, 2009. "Mental accounting and small windfalls: Evidence from an online grocer," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 384-394, August.
    8. Yacheng Sun & Shibo Li & Baohong Sun, 2015. "An Empirical Analysis of Consumer Purchase Decisions Under Bucket-Based Price Discrimination," Marketing Science, INFORMS, vol. 34(5), pages 646-668, September.
    9. Nicole Koschate-Fischer & Katharina Wüllner, 2017. "New developments in behavioral pricing research," Journal of Business Economics, Springer, vol. 87(6), pages 809-875, August.
    10. Itai Ater & Vardit Landsman, 2013. "Do Customers Learn from Experience? Evidence from Retail Banking," Management Science, INFORMS, vol. 59(9), pages 2019-2035, September.
    11. Eduard Marinov, 2017. "The 2017 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 117-159.
    12. Jin, Haofeng & Lu, Zhentong & Huang, Liqiang & Dou, Junsheng, 2021. "Not too much nor too little: Salience bias in mobile plan choices," Telecommunications Policy, Elsevier, vol. 45(4).
    13. Maria Alessandra Antonelli & Valeria De Bonis & Angelo Castaldo & Alessandrao Gandolfo, 2022. "Sin goods taxation: an encompassing model," Public Finance Research Papers 52, Istituto di Economia e Finanza, DSGE, Sapienza University of Rome.
    14. Fabian Herweg & Konrad Mierendorff, 2013. "Uncertain Demand, Consumer Loss Aversion, And Flat-Rate Tariffs," Journal of the European Economic Association, European Economic Association, vol. 11(2), pages 399-432, April.
    15. Leigh Anderson & Kostas G. Stamoulis, 2006. "Applying Behavioural Economics to International Development Policy," WIDER Working Paper Series RP2006-24, World Institute for Development Economic Research (UNU-WIDER).
    16. Koch, Alexander K. & Nafziger, Julia, 2016. "Goals and bracketing under mental accounting," Journal of Economic Theory, Elsevier, vol. 162(C), pages 305-351.
    17. Esteban, Susanna & Miyagawa, Eiichi & Shum, Matthew, 2007. "Nonlinear pricing with self-control preferences," Journal of Economic Theory, Elsevier, vol. 135(1), pages 306-338, July.
    18. Shy, Oz, 2008. "Measuring the cost of making payment decisions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(6), pages 2411-2416, December.
    19. Ulrike Malmendier, 2018. "Behavioral Corporate Finance," NBER Working Papers 25162, National Bureau of Economic Research, Inc.
    20. Katharina Dowling & Lucas Stich & Martin Spann, 2021. "An experimental analysis of overconfidence in tariff choice," Review of Managerial Science, Springer, vol. 15(8), pages 2275-2297, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbrese:v:182:y:2024:i:c:s0148296324003084. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbusres .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.