Definition of two-part pricing

Pricing strategy comprising a fixed (lump-sum) charge that does not vary with usage or consumption and an additional charge that does vary with usage or consumption.

Providers of services including banking and finance, telecommunications and transport commonly apply two-part pricing.  One reason to set a two-part price is to cover some customer-specific fixed cost, such as the cost of connection in telecommunications or the cost of line rental.

Example

For instance, in February 2011, Singapore Telecom’s rate for a residential fixed line was S$29.43 for three months plus a usage charge of 0.86 to 1.72 cents per 60 seconds, depending on the time of day.

Another reason to use two-part pricing is to apply indirect price discrimination between customers with different demands for an item or service. For example, in the UK, you can apply for a BT (British Telecom) unlimited evening and weekend 12-month renewable phone contract at an additional cost.  Here, you get unlimited calls for up to an hour to UK landlines between 7pm and 7am weekdays and throughout the weekend. [1]

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