Weigh Flat-Fee Pricing

Many types of retailers charge customers a flat fee per month for unlimited use of services. Here are some consumer psychology factors to consider in deciding if and how flat-fee pricing for services can work well for your business:

• A variety of surveys find that people hesitate committing to a flat-fee plan unless they believe they can quit at any time, even if there’s a penalty for midterm cancellation. The reality to keep in mind, though, is that because of mental inertia and the comfort of not having to worry about piecemeal purchases, people are unlikely to cancel a flat-fee arrangement until the next renewal date.
• Research at University of Pennsylvania and University of Southern California suggests that people agreeing to a flat-fee arrangement are more likely to build commitment to the retailer and recommend the retailer to others if the customers are referred to as “members of the plan” rather than as “subscribers to the plan.”
• Do you have the capacity to provide for the maximum quantities and the ranges in demands that customers will request? According to researchers at University of Southern California, most consumers overestimate how much of the service they will use in the future when first purchasing a flat-fee agreement. Take this into account when doing your planning for how many customers you can accept and how many service providers you’ll require.
• Research at Harvard University and University of Toronto finds that, as a general rule, usage is highest in the initial weeks after agreement to the plan, and usage fades over the following periods of time. Because the customer’s rate of use tends to be lowest right before renewal time, it is especially important that you—the retailer—present advantages of renewal and encourage use as the renewal date approaches.

For your profitability: Sell Well: What Really Moves Your Shoppers