OnDemand WTP Pricing Research

Why More Businesses Should Consider Flat Pricing | INSEAD Knowledge

Flat pricing can represent a win-win for customers and firms.

During a recent overseas trip, as soon as I stepped into a taxi, the driver offered to quote me a fixed price for travelling to my destination instead of using the meter. The driver clearly knew more than me about the route and the road conditions that day, and there was a good chance that this information asymmetry would allow him to profit by charging more than the expected cost of this trip. I was nevertheless drawn to the fixed price and accepted his offer. I suspected that many customers also prefer to pay a flat price. A survey that I conducted later confirmed that the preference for flat fares is pervasive. Yet this pricing approach is not as common as I believe it should be.

Flat pricing –paying a pre-agreed price no matter how much you consume – offers predictability and relief from the common meter-running annoyance. It eliminates the challenge of resisting staring at the taxi meter in spite of being fully aware that gazing at it will not make it move any slower nor make the ride any more pleasant. Consider how painful it would be to pay a per-minute fee for conversations with your lawyer, including the really bad joke he told you.

Another benefit of flat pricing is that once you’ve paid, you can think of everything you consume as “free.” Customers love the sense of receiving something for nothing. Unrestricted consumption adds to the appeal – liberty feels great.

The alternative to flat pricing, better known as usage-based pricing, is the meter-based pricing that taxis usually rely on, for example. With this common approach customers pay for what they consume – no more, no less. Utility companies typically charge by the unit, hospitals by the number of days you stay and the medical procedures involved, and lawyers and other professional service providers typically charge by the hour.

Read complete article here:

Why More Businesses Should Consider Flat Pricing | INSEAD Knowledge.

Post a Comment

WP-SpamFree by Pole Position Marketing