Thesis 1: Flat rates mean that the vast majority of light users subsidize a small minority of heavy users. Thesis 2: Flat rates lead with a high probability to lower revenue and profits. From an economic standpoint, flat rate s make no sense.

Innovation is the foundation: In general, innovation provides the foundation for a successful, sustainable premium price position. This applies to groundbreaking innovations as well as continual improvements, such as Miele ’s under the motto “Forever Better.”

So I went to the home improvement store and found a large assortment of locks, priced in a range of $4–$12. What did I do? On the one hand, I didn’t require a high level of security which would warrant the purchase of one of the expensive locks. On the other hand, I didn’t trust the quality of the cheaper locks. So I chose one from the middle of th

“Setting our prices is easy,” a marketing director at a safety products company once told me. “We just look at what the premium supplier in our market does, and come in 10 % below them.”

Pricing power determines whether a supplier can achieve his or her desired price s. It also determines the degree to which a brand can earn a premium price .

One has the perception that these services cost “nothing.” They also avoid the “taxi meter” effect. From the perspective of prospect theory , every phone call or online interaction provides a positive utility . We have these experiences daily, and their sum is greater than the negative utility of the flat rate, which we pay once a month.

The hard truth is that you need to double your volume after the price cut to keep your profits at $10 million. Anything less will reduce your profits.

Attempts to win over customers through lower prices don’t work. These effects also explain why discounts on no-name products or weaker brands also fail to work: customers associate the reduced price with lower quality or with low prestige.

“One thing is clear to us: we are not going to pump the market full of cars when there is no demand for them. We always want to produce one car less than the market demands.”