Hedonic tariff choice and consequences of flat-rate bias

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Flat-rate pricing for services is increasingly popular, but many customers exhibit flat-rate bias, opting for flat rates even when pay-per-use would be cheaper. This bias varies, and previous studies have not explored the service characteristics influencing it. In five studies using three approaches, Fabian Uhrich demonstrates that customers' consumption goals significantly affect their flat-rate choices. Specifically, seeking hedonic gratification leads to a higher flat-rate bias compared to fulfilling utilitarian needs. The more hedonic a service, the greater the taxi-meter, insurance, and overestimation effects. Increasing the hedonic appeal of services could attract more flat-rate customers. Uhrich also examines the impact of flat-rate bias on customer loyalty. Contrary to earlier research, his findings reveal a nuanced view: while flat-rate bias negatively affects churn, it does not influence tariff switching. Each overspent Euro reduces the expected lifetime of a flat-rate contract by about 1 percent. The relationship between flat-rate bias and Customer Lifetime Value (CLV) is inversely U-shaped, with low bias increasing CLV and high bias potentially reversing it. An experimental survey of mobile telephony customers shows that the competitive position of service providers affects these outcomes. Low-cost providers face increased tariff switching, while premium providers risk higher churn. Managers of premium services sho