Pricing · Pricing field experiment and utility-based retention model
The Impact of Tariff Structure on Customer Retention, Usage, and Profitability of Access Services
Marketing Science · 2011
Summary
Compared with pay-per-use pricing, the two-part tariff reduced annual retention by an average 10.5% and yearly usage by 38.7%, after controlling for income effects.
For your marketing
Possible founder application
Evaluate the behavioral effects of access fees separately from per-use prices. A plan can reduce usage and retention yet still improve profit, so test the full customer and margin outcomes.
Reported result
What the study found
Compared with pay-per-use pricing, the two-part tariff reduced annual retention by an average 10.5% and yearly usage by 38.7%, after controlling for income effects. Despite these declines, the two-part tariff remained profit-maximizing in the studied setting. Ignoring the tariff-structure effect reduced modeled firm profit by 11%.
Research question
What the authors investigated
How do pay-per-use and two-part-tariff pricing affect service retention, usage and profit?
Design
A utility-based model is estimated with data from a pricing field experiment for a new telecommunications access service.
Sample and setting
Customers of one new telecommunications service in a market experiment; the abstract reports model-based average effects across the experimental tariff conditions.
Scope and transfer
Limitations to keep in view
A single telecommunications service and historical market experiment. The profitability result depends on the study's demand, cost and pricing assumptions and should not be treated as a SaaS pricing benchmark.
Research sources
INFORMS publisher abstract; the experiment setting, tariff comparison and reported percentages are stated there.