The study of brand loyalty and switching cost on OTT bundled service choice: Focusing on reference-dependent preferences in the saturated market

Abstract

The pay-TV service providers have introduced over-the-top (OTT) bundled services to attract additional subscribers in a saturated market. However, the majority of consumers in South Korea tend to bundle pay-TV services with mobile phones and internet, engaging in these services through contractual agreements. Given the potential lock-in effect of such bundling, there is a likelihood of elevated switching costs for pay-TV services. To thoroughly assess the possibility of consumers switching to other services, it is crucial to consider factors such as brand loyalty, which is often represented by the lock-in effect. Switching costs and brand loyalty can be elucidated by the loss aversion effect, rooted in reference-dependent preferences. Therefore, this study obtained data through a discrete choice experiment on OTT bundled services and delved into consumer preferences for services using a reference-dependent choice model, with the currently used pay-TV service serving as the reference point. The findings indicated a notable high switching cost for pay-TV services, reaching up to a maximum of $25.8 per month, and brand loyalty was found to have a statistically significant impact on these costs. Consequently, it was concluded that the effectiveness of strategies aimed at attracting new subscribers through the introduction of OTT bundled services would likely be insignificant.