Should wireless carriers protect residential voice subscribers from high overage and underage charges? Insights from the Canadian telecommunications market

Wong, Ken Kwong-Kay

doi:10.1016/j.telpol.2010.04.003

Cited by 11 publications

(6 citation statements)

References 32 publications

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“…Our study contributes to extant literature on flat-rate pricing in three main ways. First, our findings help explain conflicting results in choice bias literature (Ascarza and Hardie 2013; Della Vigna and Malmendier 2006; Iyengar et al 2011; Lambrecht and Skiera 2006; Wolk and Skiera 2010; Wong 2010a, 2010b) by introducing firms’ competitive position as an important contingency factor. Two experiments show that premium providers actually suffer more from churn among flat-rate biased customers than do low-cost providers; the transactional data analysis provides initial evidence of these findings in the premium segment.…”

Section: Overall Discussionmentioning

confidence: 61%

“…Lambrecht and Skiera (2006) find that customers with a flat-rate bias exhibit substantial tariff-switching behavior but do not churn such that they are “paying too much and being happy about it.” Della Vigna and Malmendier (2006) and Wolk and Skiera (2010) similarly find no negative effects of flat-rate biases on customer loyalty. In contrast, other studies show that flat-rate customers with the wrong calling plan exhibit higher churn rates than customers who chose the best tariff for them (Iyengar et al 2011; Joo, Jun, and Kim 2002; Wong 2010a, 2010b). According to Joo, Jun, and Kim (2002), 40% of 10,000 mobile telecommunications customers subscribe to the wrong calling plan, 2 and they also show significantly lower retention rates than those with the economically optimal plan.…”

Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 79%

“…Managers face a double bind: On the one hand, customers’ flat-rate bias is a significant profit source. According to Wong (2010b), service providers earn up to half of their revenue from rate plans that are not financially optimal for customers. On the other hand, service providers seek “zero defections” and want to enhance customer loyalty (Reichheld and Sasser 1990).…”

Section: Overall Discussionmentioning

confidence: 99%

“…A customer who realizes that he or she is paying too much for a flat rate might develop different attributions and assign fault for the wrong tariff choice to the service provider or to themselves, depending on its market positioning. The attribution then might lead to negative feelings toward the firm or to themselves (Wong 2010b).…”

Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 99%

“…Yet evidence about the consequences of flat-rate biases is mixed. Some studies find no negative effect on customer loyalty (Della Vigna and Malmendier 2006; Lambrecht and Skiera 2006; Wolk and Skiera 2010), but others indicate that flat-rate customers with the wrong calling plan exhibit higher churn rates than customers who choose the best tariff for them (Iyengar et al 2011; Joo, Jun, and Kim 2002; Wong 2010a, 2010b). Appendix A contains a review of these contradictory findings.…”

mentioning

confidence: 99%

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The Effect of a Service Provider’s Competitive Market Position on Churn Among Flat-Rate Customers

Moser

Schumann

Wangenheim

et al. 2018

Journal of Service Research

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Flat-rate pricing, as opposed to charging customers for actual usage, dominates many service industries (e.g., telecommunications, health clubs, and music streaming), and customers often express a flat-rate bias and choose flat rates even if a pay-per-use tariff would be less expensive for them. However, evidence of the effect of this bias on churn is mixed. The competitive market position of a service provider may represent a relevant contingency factor related to this effect; building on attribution theory, the current study predicts that customers attribute their flat-rate bias differently, depending on service providers’ strategic positioning, which leads to varying churn behavior. A survival analysis of approximately 2 years’ transactional data gathered from 21,490 customers of a premium Internet service provider affirms that a flat-rate bias leads to churn in the premium segment. Two experimental studies show that customers of premium service providers attribute their flat-rate bias more externally and exhibit lower fairness perceptions but increased churn intentions compared to low-cost customers who make internal attributions and who thus have less negative perceptions and lower churn intentions. Therefore, premium service managers must proactively manage customers who exhibit flat-rate biases to prevent their negative reactions. Low-cost providers generally have less need for such action and can benefit from flat rates without risking increased churn, despite higher price sensitivity of their customers.

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