Flat-rate pricing for services is becoming more and more popular. At the same time the
occurrence of a flat-rate bias increases as well: Many customers choose flat-rate pricing even
if pay-per-use pricing would have been less expensive for them. Although the degree of
flat-rate bias varies until now no study has analyzed service characteristics that might
influence its extent. In five studies combining three different approaches Fabian Uhrich shows
that customers consumption goals with regard to a service have substantial impacts on their
flat-rate choices: Consuming services to attain hedonic gratification leads to a significantly
higher flat-rate bias than using services to fulfill utilitarian needs. The more hedonic a
service the higher the taxi-meter insurance and overestimation effects. However more
utilitarian value has no significant impact on the flat-rate bias. Thus by increasing hedonic
perceptions of their services service providers could gain more flat-rate contract customers.
In a subsequent step Uhrich investigates the consequences of a flat-rate bias on customer
loyalty. Whereas prior research has found no negative impact of flat-rate bias on customer
loyalty Uhrich s study provides a more differentiated perspective. A survival analysis of
two-year transactional data of 21 490 Internet service provider customers reveals that
flat-rate bias has a negative effect on churn but not on tariff switching. The expected
lifetime of a flat-rate bias customer contract decreases with every overspent Euro by about 1
percent. The relationship between flat-rate bias and the Customer Lifetime Value (CLV) is
inversely U-shaped. Low degrees of flat-rate bias increase the CLV while high degrees can
reverse this effect. The results of an experimental survey among mobile telephony customers
explain these discrepancies to prior findings by showing that the competitive position of a
service provider moderates the consequences of flat-rate bias. While low-cost service providers
only experience increased tariff switching premium providers are confronted with an increased
churn risk. Managers of premium service providers are therefore advised to carefully evaluate
reactions of their flat-rate bias customer base and proactively manage customers with strong
flat-rate bias. Low-cost providers however have no need for action and can benefit from
flat-rates without the danger of churn. They should leverage the positive impact of service
hedonization on the flat-rate bias to increase profits.
