Is There a Method in Cellphone Madness?

cellphone pricing

Ever wonder what's up with your cellphone bill?

This great article in the New York Times explains some of the psychology behind the pricing plans.

“But understanding the psychological nuances of how a price plan affects customers’ behavior is at least as important to running a cellphone company today as knowing how radio waves spread over a city. Those high charges for going over your allotted minutes, for example, are designed to cause you enough pain that you will switch to a plan with a higher regular fee.

“You give people a really good bargain on this bucket of minutes,” explained Roger Entner, a senior vice president for telecommunications research at Nielsen. “People are risk averse, so you have a relatively high overage charge, which gets people to overbuy. You also get really predictable revenue out of it, which Wall Street loves.”

Neither the cellphone companies nor their customers, as it turns out, always act in the rational way that economists might predict. Consumers often put immediate gratification and the avoidance of unpleasant surprises above their long-term interests. The companies, meanwhile, are trying to meet the sometimes irrational expectations of investors, who want growth without too much nasty volatility, even if their profits suffer.”