Is the all-you-can-eat model ever a good idea?

Marketplace Contributor May 9, 2012

Jeremy Hobson: The head of AT&T says he has a big regret. He regrets that his company ever offered unlimited data plans to mobile phone users for a set price. The all-you-can-eat model, he says, is costing AT&T money. For more on this, let’s bring in L.A. Times consumer columnist David Lazarus. Good morning, David.

David Lazarus: Morning, Jeremy.

Hobson: So is the all-you-can-eat model, if you will, not a good one for companies?

Lazarus: I would say it was never a good one for companies, ’cause it always seems to turn around and bite you in the keyster. I mean, in the case of AT&T’s Randall Stephenson saying iPhone all-you-can-eat plan wasn’t a good idea. Well of course it wasn’t! Because people would start using it a lot. And then there was that much-discussed article in the L.A. Times the other day about American Airlines offering $350,000 all-you-can-use first-class tickets for the rest of your life. And what, it turns out that it’s costing over $1 million a year per passenger!

Hobson: So then why do these companies do it in the first place?

Lazarus: I think they do it because they just don’t crunch the numbers. And they figure, boy, not a lot of people will take us up on it, we’ll get more money over the long run than the customer. What they don’t figure is the customer’s not stupid; you offer them something like this, they will figure out how to make the most of it.

Hobson: Now are the cousin of all-you-can-eat plans — lifetime subscriptions — are those also flawed in your view?

Lazarus: I would say so, simply because often times market circumstances or technology will overtake things. For example, a few years ago, there was a Seattle company called TrafficGauge, which offered lifetime subscription to real-time traffic information. And then it found out that that lifetime subscription was costing it a pretty penny, so it tacked on a $9.95 annual fee to boot — thus reneging on its original contract, but saying, “Hey, what can we do. Times change.” Well, of course they do.

Hobson: Well, what about all-you-can-eat buffets though David? They do seem to work. I mean, you go to some restaurants and they offer unlimited breadsticks or unlimited pasta — they seem to stay in business.

Lazarus: Well, yeah, but these guys really crunched the numbers and they looked at how much people will really use, and they kind of use low-quality ingredients. So unless these guys get overrun by a troop of sumo wrestlers, it probably isn’t going to happen a lot. Chances are they’re going to come out ahead. But here’s the main thing: In about 20 years, according to the latest projections, the obesity rate among adult Americans will be nearly 50 percent. So I would say, all-you-can-eat restaurants, they’re like toxic waste dumps.

Hobson: L.A. Times consumer columnist David Lazarus, thanks a lot.

Lazarus: Thank you.

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