Interesting Results

The Effects of Access and Usage Prices on Subscription Services

Many subscription-based services such as cellular phones and the Internet use a dual pricing system, comprising a monthly access (rental) fee and a charge for the amount of time or volume of data used. A 2002 study¹ used a market experiment for a cellular-based service that manipulated both access and usage prices to examine the relative impact these variables have on the retention of customers and their use of the service. The study found that:

Access price has some effect on subscriber usage but a much stronger effect on retaining customers to the service.
Usage price has a strong effect on the amount of time spent using the service, but a more moderate effect on retaining customers — if usage price increases to the extent that usage of the service declines, then lower usage levels result in the loss of some customers.
Overall demand (the combination of the number of subscribers and their usage) for the service is more sensitive to changes in the usage price than changes in the access price.
The rate at which customers unsubscribe from the service is much more sensitive to changes in access price than usage price.

¹ Danaher, Peter, J. (2002), “Optimal Pricing of New Subscription Services: Analysis of a Market Experiment”, Marketing Science, 21(2), 119-138.