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

Abstract

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.

When and Why a Squeakier Wheel Gets More Grease: The Influence of Cultural Values and Anger Intensity on Customer Compensation

“…To test simultaneous mediators, we used the SPSS24 macro PROCESS (Model 6; Hayes 2013), a common statistical software package for the psychological sciences. The advantage of PROCESS is that it can simultaneously test the significance of different hypothesized mediation paths using a bootstrapping technique (for similar use, see Moser et al 2018).…”

Ensuring customer retention: insurers’ perception of customer loyalty

“…Although this was the only article to have no citations whatsoever, it was included in this study as per the inclusion criteria described in Section 4.2 of studies more recent than two years. This study has investigated the most recurring themes in similar types of research concerning customer loyalty in insurance settings (Broström and Bengtsson, 2018; Broström et al , 2018; Moser et al , 2018; Stone, 2016). It should be noted that recurring themes does not signify that they are ranked in anyway according to importance.…”

Pricing Metrics and the Importance of Minimum and Billing Increments

“…Essentially, a tariff is a mechanism that describes how to use prices and other pricing components (e.g., minimum and billing increments) to transfer usage into a billing rate. Although the term “tariff” is popular in the nonlinear pricing literature (e.g., Oi 1971; Schlereth, Stepanchuk, and Skiera 2010), researchers also use labels such as “pricing schedules,” “pricing menus,” “pricing structures,” “pricing schemes,” “pricing policy,” “metered pricing plan,” and “pricing plan” (e.g., Fruchter and Rao 2001; Moser et al 2018; Schlereth, Skiera, and Wolk 2011).…”

“…It is, however, well known that customers make errors in selecting their tariff and that those errors are often not random but systematic. For example, customers suffer from a flat rate bias (e.g., Goettler and Clay 2011; Lambrecht and Skiera 2006; Miravete 2003; Mitchell and Vogelsang 1991; Moser et al 2018; Narayanan, Chintagunta, and Miravete 2007; Nunes 2000). Customers with a flat rate bias tend to choose a tariff with a rather high fixed fee and a low marginal price, although their usage behavior is too low to justify that choice (Lambrecht and Skiera 2006).…”