The effect of overspending on tariff choices and customer churn: Evidence from mobile plan choices |
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| Institution: | 1. School of Marketing and International Business, Victoria University of Wellington, PO Box 600, Wellington, New Zealand;2. College of Business Zayed University Abu Dhabi Campus, P.O. Box 144534, Abu Dhabi, United Arab Emirates;3. College of Business Administration, American University in the Emirates, Dubai, United Arab Emirates;4. School of Business Administration, American University of Sharjah, PO Box 26666, Sharjah, United Arab Emirates;1. P G Department of Commerce, University of Jammu, Jammu, 180006, Jammu & Kashmir, India;2. P G Department of Commerce University of Jammu, Jammu, 180006, Jammu and Kashmir, India;3. Operations Management, College of Business, University of Louisville, Louisville, KY, 40292, USA;4. Operations Management, Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hung Hom, Hong Kong;1. Carthage Business School, University of Tunis Carthage, Tunis, Tunisia;2. Marketing Department, College of Business Administration, King Saud University, Riyadh, 12372 , Saudi Arabia;3. ISEG – Lisbon School of Economics and Management, Universidade de Lisboa, Rua do Quelhas 6, 1200-781, Lisbon, Portugal;4. Birmingham Business School, Birmingham University, Edgbaston Park Road, Birmingham, B15 2TY, United Kingdom;5. University of Sheffield Management School, Western Bank, Sheffield, S10 2TN, United Kingdom;6. Carroll School of Management, Boston College, Chestnut Hill, MA, 02467, USA;1. School of Management, Sabanci University, Orhanli-Tuzla, Istanbul, Turkey;2. Koç University Rumeli Feneri Yolu, Sariyer, Istanbul, Turkey;3. School of Management, Sabanci UniversityOrhanli-Tuzla, 34956, Istanbul, Turkey;1. The University of Wisconsin-Green Bay, Wisconsin, 54311, USA;2. Rawls College of Business, Texas Tech University, Lubbock, TX, 79409-2101, USA;3. Owen Graduate School of Management, Vanderbilt University, 401 21st Avenue South, Nashville, TN, 37205, USA |
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| Abstract: | Understanding the relation between consumer overspending, tariff choices and customer churn is extremely important in many industries. If consumers are insensitive to their overspending and keep making mistakes in tariff choices, firms may profit from overspending and do not have to worry about customer churn. In this paper, using a rich panel data from a major mobile network operator in China, we show evidence that consumers respond to financial incentives and try to reduce overspending by switching to another plan or terminating the relationships with the operator. Given the trade-off between profiting from overspending and reducing customer churn faced by the operator, we conduct a simple policy simulation and show that the operator should encourage consumers to reduce their overspending. We also show that the effects of switching decisions on future overspending and the hazard of churn differ among upward switchers (i.e. consumers who switch to a larger plan) and downward switchers (i.e., consumers who switch to a smaller plan). Specifically, we find that consumers who switch down are more likely to reduce their future overspending, while consumers who switch up are less likely to churn. |
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| Keywords: | Overspending Tariff choices Customer churn Survival analysis Consumer protection |
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