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

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.