The price perspective wins the race

24 November 2010. In many areas of life, customers conclude contracts with companies about products and services again and again. Besides subscriptions to pay-TV or language courses, customers have numerous insurance contracts for liability, accident and illness. All of them have defined durations. When it comes to buying products, too, an increasing number of customers conclude instalment contracts in order to spread the prices over several periods (months, years).

The hire-purchase business is becoming more important
“A glance at these markets shows that the hire-purchase business has become important for many companies in the last few years,” says Prof. Dr. Andreas Herrmann, Head of the Research Center for Customer Insight at the University of St.Gallen. Almost every car company owns a bank of its own by now in order to develop the leasing business.

Fitness-Studio and pay-TV contract on trial
Participants in a study conducted by the FCI-HSG and the University of Zurich concluded contracts with a fitness studio and a pay-TV supplier. In line with the above examples, participants were granted discounts on monthly payments if they opted for longer contractduration. Alternatively, they were also able to extend contract duration by a certain number of months for which they have to make no payments.

Contract duration crucial to the purchase decision
On balance, the offers were the same in terms of the financial burden to be borne by customers. It turned out that participants with short-duration contracts (up to twelve months) prefer discounts on monthly instalments. The pricing found attractive by customers for subscription or leasing contracts thus depends on contract duration. This opens up new perspectives for the pricing of such offers.