Because they have too many free users that will always remain on the free plan, as they are the "default" LLM for people who don't care much, and that is a enormous cost. Also the capabilities of their paid tiers are well known to enough people that they can rely on word of mouth and don't need to demo to customers-to-be

It's all trade offs. The router works most of the time so most free users get the expensive model when necessary.

They lost x% of customers and cut costs by y%. I bet y is lots bigger than x.

Through hype. I am really into this new LLM stuff but the companies around this tech suck. Their current strategy is essentially media blitz, reminds me of the advertising of coca cola rather than a Apple IIe.

The good news for them is that all their competitors have the exact same issue, and it's unsolvable.

And to an extent holds for lots of SaaS products, even non-AI.