Price Discounts versus Unit Premiums: Differences in Evaluation Considering Consumers’ Intertemporal Choice

Abstract

Price discounts or unit premiums? Two alternative approaches to offer and design subscription tarifs. A firm can offer subscriptions of different durations with specific price discounts, the longer a customer subscribes, the lower the price per time unit. Alternatively, a firm can design and differentiate subscriptions of different periods applying the same price per time unit and offering customers of longer subscription periods a time period of free usage (premium). In this paper, we analyze, whether these two presentations are equivalent in terms of consumers’ evaluation, or, if there are any differences that have major managerial implications for firms offering subscription plans. Our results show that consumers have different expectations when talking about price discounts or unit premiums. Further, we derive implications for firms’ optimal pricing policy of subscriptions.