Something that I noticed with both my mobile phone/mobile data accounts and my web hosting accounts (in both cases I have the customer of the same companies for more than two decades now):
Technological progress and competition force my providers to improve the cost/benefit ratio of their pricing plans (e.g. mobile data: more data volume for the same price or a lower price for the same data volume; web hosting: more storage and/or SSD instead of hard disks for the same price, or a lower price for the same storage).
They offer new pricing plans to attract new customers
The legacy pricing plans are not discontinued but just not sold to new customers. Existing customers continue on their legacy pricing plan until such time as these customers wake up and notice that they are better off changing to the current plan of the same provider.
I don’t know about a specific name, but the principle is that they have a contract, they were happy when they signed up, why should I tell them about a better deal?
It sounds to me like the term you are looking for is “grandfathering”, but that usually applies when prices go up and companies allow existing customers to keep their current/lower pricing, which works to their advantage. This would be the opposite of that.
“Churn” - it’s infuriated me for years that insurance companies do it - renewal premiums go up for existing (even if non-claiming) customers while new ones get tempting offers. So savvy customers keep churning between companies while those who’d rather not spend time and effort researching new deals with other companies end up subsidising the cheap deals.
“Churn” is what the companies would like to prevent, not cause. But some degree of churn is an inevitable consequence of loss-leader pricing. Unless the companies are real diligent about never offering loss leader pricing to a former and now returning customer.
But as always, that play only works if all the businesses cooperate to impose the same restriction. Cooperation is both illegal and is expensive for any company that abides by the cooperative norm while others are cheating at it.
So from the business’s collective POV, churn is a sort of tragedy of their commons, where individually beneficial behavior ends up harming all of them.
Absent very carefully crafted legislation / regulation, and a very powerful well-funded and well-motivated regulator to police it, tiered pricing and different people paying very different prices for essentially the same product will continue. And in fact probably only grow.
“grandfathered in” is the obvious term that describes just that. Though it typically refers to good things that have been discontinued or banned completely, but people who have them are are allowed to keep them.
And it’s not exclusive to products with rapidly advancing technology, either. For as long as I can remember my father would get mad at magazines for offering new subscribers a lower price than renewals. He’s cancel the magazine, wait a month and then subscribe at the newcomer rate. I’ve seen auto companies offer special deals for someone trading a competitor brand, but no deal for existing customers.
In days of old, we could get on the phone with customer service and usually embarrass them into giving us the same deal. That doesn’t seem so common now, assuming we can even get a live customer service person.
This reminds me of the scene in Boiler Room where Giovanni Ribisi is offered a newspaper subscription. He ask the salesman if that doesn’t screw over the old subscribers in favor of the new ones and the salesman says Sure, I guess. Ribisi replies that he can live with that.
Legacy pricing though that’s not always screwing the customer. We might lack a word to mean failure to shop around or complacent disregard of opportunity for improvement.
My internet provider is great at this. Give you a special for a year then regularly jack up the price more and more. Go in to get the new special for a year. I’m guessing most just pay the rapidly escalating costs.
The general phenomenon, of which this is an application, is price discrimination. Charging different prices to consumers with different willingness to pay is a form of monopoly power, which exists to some extent in oligopolistic industries (industries with a few competitors). In this case, we have price sensitive new customers, inattentive old customers to exploit, and attentive old customers willing to go through the hassle of switching. Three markets, two products, two prices.
Banks do this too. They offer a savings account with a high interest rate, then introduce a new savings account, then lower the rate on the legacy account.
There’s a lot of it around. Movie theaters that give a discount for matinee seating? Price discrimination. Quantity discounts? Price discrimination. Airline pricing? Price discrimination all over the place.
Agree it’s simply another form of price discrimination.
Somehow the nature of it feels differently from a consumer protection POV when the product is an auto-renewing subscription rather than a free-standing one-time purchase.
In my experience, the practice should be called “the cell phone service provider business model”. Don’t know if it has a more formal name, but cell phone carriers excel at this scam.
Another practice we maybe need a term for - a new plan comes out and it’s open to existing customers. In fact , they try very hard to get existing customers to switch to the new plans. Which do, on their face seem to cost a little bit less. But if you don’t look carefully, the new plans don’t offer certain promos and discounts. So you may end up paying more ( lost discounts) for less ( no more Disney bundle or Apple Music)
Interesting. Yes, that is a form of price differentiation. I think what makes it different is that all the prices are advertised up front and all customers have equal knowledge and access to the options. In that case, the customers are choosing the price they pay based on their own choice.
The situation with loyalty penalty (thanks for that term) is that it’s sneaky. It takes advantage of the customers that like you. It treats regulars worse than newbies.
Yes, it works. Human nature means people loathe tedious effort. We want to set something up and forget it, not have to remember to look things up and reshop all the time.
How about “greener grass lures”? Because the grass is always greener over there. Or maybe “Barnum lures”, as in P.T. Barnum, the circus guru. He was all about hype in sales pitches. The famous story about “the Great Egress” comes to mind.