Here is an study of consumer behavior and gym memberships. It casts some light onto the motivators which influence purchasing behavior.
Paying Not to go to the Gym
The science behind behavioral bias towards all-you-can-eat plans in the attached paper “Paying Not to go to the Gym” is pretty interesting. A private equity firm recently used it when projecting how Weight Watchers would fare under a similar shift from pay-per-meeting to subscription.
“Consumers deviate systematically from the optimal contractual choice”, largely due to risk aversion (minimizing variance of payments) and the cognitive dissonance associated with having to make regular transaction-based decisions. Same reasoning so many people pay for all-you-can-eat cell phone plans.”
In other words, the market for gyms fares far better because of the ease of use and simplicity of a flat rate for “all you can work out” pricing, as opposed to individual transactions for each time you go to the gym. People appear be pre-disposed to simplifying their transactional efforts for a known quantity – assuming it delivers what they are looking for – even if it costs far more than the “a la carte” approach.
Around the world content owners and network owners (ISPs) are beginning to try flat-rate schemes in an effort to develop a new model for recorded music.
When you look at iTunes as it exists, it already incorporates this notion of simplicity in it’s ecommerce engine. You enter your payment information once and it is stored, making the next transaction that much easier. One has to wonder if iTunes would be anywhere near as successful (or amazon for that matter) if the user had to enter their credit card for each and every song or book or other product purchased. The mechanics of a flat rate are already partially installed in the iTunes commerce model.
I suggest that we consider an experiment at a premium level, instead of trying to find the lowest possible price point that would work for all consumers. Perhaps the flat rate that covers “all you can eat music” might fly at higher price points than have been envisioned thus far, when properly packaged and positioned. To some people with resources, an unlimited music service, with high quality files, that reliably delivers music whenever you want it – without any legal hassles – may be worth much more that we have imagined. We might make more progress if we started at the top of the pyramid rather than the bottom.
I invite your comments.