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Here Come the New Money Grabbers

Last update on: Oct 17 2017

The all-in-one, unlimited use offer is sweeping the marketplace. It also is likely to waste a big chunk of your change.

The most prominent offers taking advantage of this trend are for telephone service. Most major telephone companies now are widely-promoting unlimited use – or all-you-can-call – plans. The companies offer local, long distance, and even cellular phone service when they can, in one package. Additional services often are included, such as voice mail, call waiting, and caller ID. You pay one monthly fee and get one detailed bill.

For example, IDT offers unlimited local and long distance service for $40 per month. MCI’s Neighborhood plan is $50 in most states and $70 in others. Sprint’s plan is $50 to $60. AT&T’s One Rate is $50 to $55, and Verizon’s Freedom plan is $50 to $60. The prices and plans have a history of changing rapidly. Taxes and fees can add $10 or more to the monthly bill.

The ads would have you believe that the offers are the latest in convenience and economy and were demanded by consumers. The real story is a bit different.

Most businesses, especially technology-oriented businesses such as telephone companies, have a lot of data and computer power. They also have access to economists and other consultants, who have studies of and experience from other industries. This information points to human failings, emotions, and behavior that show the companies how to develop packages that are appealing to consumers and are more profitable to businesses.

The unlimited use packages probably began with gyms and health clubs. They found that many people who bought long-term unlimited use memberships rarely used them. One extensive study found that 80% of those with monthly contracts would have spent less money by paying the per visit fee. The study also found that even after a consumer realized that he was not using the gym enough to justify the fee, he waited several months to cancel the membership.

Similar results were obtained from studies of video rental, mobile phone, and mail order clubs.

Consumers waste money in these plans because of what the economists call self-discipline problems. The problems include:

Overconfidence or over-estimation. People sign up for extended health club memberships because they believe they will have the discipline to go to the gym every day, or at least several days a week. For most people, that estimate is far off the mark. For other purchases, consumers simply don’t have the information that the businesses do. The consumers improperly estimate their usage, especially with cellular telephone plans. Most people don’t use all the calling time they pay for.

Some people believe that signing up for the long-term plan will give them an incentive to use the product or service. For most people, however, it turns out that is not a strong enough incentive to change behavior.

Procrastination. People often find reasons to avoid taking the steps that are necessary to make a change. Credit card companies offer ultra-low introductory teaser interest rates, because they know most who accept the offers won’t take action as soon as the teaser rate expires. They will stay put for at least a few months and pay the higher rate. Automatic billing for services also plays off procrastination. People lose track of their use of a service or product and don’t take action when the entry appears on the monthly credit card statement.

To prevent getting caught in these traps, consider these steps:

  • Before signing up for an unlimited use or long-term plan, ask if the business has a pay-as-you-go plan or a shorter-term plan. Many businesses have such plans but do not advertise them. Then, determine how much you would have to use the service to benefit from the long-term or unlimited use plan. 
  • Track your use. You can always change the plan you are under with most businesses. Don’t consider it a one-time decision. After you have established a pattern of use, see how much the same use would cost on a per-use basis. This is easy to do with phone services, since you get an itemized monthly bill. If you have lost track of your usage, such as for a health club, ask if they have a record. Many businesses that use some kind of membership card can deliver a detailed list of your activities. 
  • Add other incentives. If you don’t go to the gym on your own, make an appointment with a friend to go together. Block out time on your calendar, just as you do for appointments and commitments.

These and other strategies can change your use of the service so that you are getting value for the fees paid.



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