The effect of free sampling strategies on freemium conversion rates
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RESEARCH PAPER
The effect of free sampling strategies on freemium conversion rates Oliver Francis Koch 1 & Alexander Benlian 1
Received: 27 January 2016 / Accepted: 22 September 2016 # Institute of Applied Informatics at University of Leipzig 2016
Abstract Freemium business models, where companies offer a free basic and a value-enhanced paid version of a product, have become ubiquitous across software, games and a broad range of web services. Despite the many benefits of freemium, most firms suffer from too few premium subscribers (3–5 %), which challenges their profitability. Although free trials have helped improve premium conversions, research hitherto has paid little attention towards what works effectively. Therefore, we examine the effect of two common free trial strategies on consumers’ conversion likelihood: Freefirst, where consumers start in the free and then opt into a trial of the premium version and Premiumfirst, where things are experienced in reverse order. Based on a contest-based online experiment with 225 subjects, our analysis reveals that in contrast to Freefirst, Premiumfirst significantly increases conversion propensity and that this positive effect is greater when the premium and the free version are more similar.
Keywords Freemium business models . Premium conversion . Free trial strategies . Product value discrepancy . Loss aversion . Randomized online experiment
JEL Classification 2.20.3 . Experiment 3.080 . Consumer behavior 3.120 . E-Business 5.110 . Services Responsible Editor: Steven Bellman * Oliver Francis Koch [email protected]
1
Chair of Information Systems & Electronic Services, Darmstadt University of Technology, Hochschulstraße 1, 64289 Darmstadt, Germany
Introduction The surge of freemium business models across products and services, including software, games, and web services such as Dropbox, Candy Crush or Spotify has brought clear benefits to both users and providers, for example by facilitating the adoption and diffusion of new products. However, the economics of freemium still remain a challenge to companies’ profitability (Jiang and Sarkar 2009). Freemium describes business models where firms offer a service or a product for free, but a fee is charged for a premium version that entails advanced features, functionality or less disturbance (i.e., advertising) (Liu et al. 2014). Premium users typically account for 3–5 % of total users. Increasing the proportion of premium users opposed to free users continues to be a challenging but critical lever for reaching profitability (Wagner et al. 2014). Against this backdrop, many firms such as Dropbox or Evernote are using free trials to counter the experience-good characteristics of their digital services and thus attempt to improve premium conversion rates (Dörr et al. 2013; Shapiro and Varian 1998a, 1998b). With experience goods, consumers can only assert various attributes (e.g., value) through direct experience and not via external information (Chiang and Dholakia 2003). In the context of freemium business models, compa
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