Start Date
10-12-2017 12:00 AM
Description
Grandfather clause is the practice of exempting existing consumers from a price hike or allowing them to continue consuming a discontinued service. We examine the effect of grandfather clause on subscribers’ behavior in video-on-demand industry. Taking advantage of a policy change event as our identification strategy, we found that (1) grandfather clause extends subscribers’ subscription duration; (2) subscribers are more likely to keep their subscription during low activeness periods; and (3) subscribers behave reciprocally to firms’ kindness by contributing more contents (e.g. subtitles and reviews). This paper contributes to the literature in behavior-based pricing and customer relationship management area. We provide empirical support to providing lower price to existing subscribers, meanwhile, we highlight the importance of communicating value to customers.
Recommended Citation
Zhang, Xiaoqing and Phan, Tuan Quang, "Customers’ Response to Advantaged Grandfather Clause: a Natural Experiment" (2017). ICIS 2017 Proceedings. 11.
https://aisel.aisnet.org/icis2017/Economics/Presentations/11
Customers’ Response to Advantaged Grandfather Clause: a Natural Experiment
Grandfather clause is the practice of exempting existing consumers from a price hike or allowing them to continue consuming a discontinued service. We examine the effect of grandfather clause on subscribers’ behavior in video-on-demand industry. Taking advantage of a policy change event as our identification strategy, we found that (1) grandfather clause extends subscribers’ subscription duration; (2) subscribers are more likely to keep their subscription during low activeness periods; and (3) subscribers behave reciprocally to firms’ kindness by contributing more contents (e.g. subtitles and reviews). This paper contributes to the literature in behavior-based pricing and customer relationship management area. We provide empirical support to providing lower price to existing subscribers, meanwhile, we highlight the importance of communicating value to customers.