Consumer perception of mobile telephony tariffs with cost caps

Abstract

In this article we provide a seminal academic investigation of mobile telephony consumers' perception of the recently introduced cost cap tariff in comparison to corresponding pay-per-use and flatrate calling plans. Previous studies have identified several psychological effects through which consumers are believed to be biased towards flatrate plans. However, flatrate plans also limit customers' tariff flexibility in months of low usage. Cost cap tariffs are a hybrid between pay-per-use and flatrate plans and can offer cost insurance while maintaining flexibility. In particular, we provide evidence from a survey among 214 German university students that flexibility, cost insurance and the so-called taximeter effect are the main drivers behind cost cap tariff choice. Furthermore, we show that the insurance and taximeter effects are distinct if evaluated within a flatrate or cost cap tariff framework. Finally, based on our results we also comment on the profitability of cost cap plans from a strategic management perspective.