Study finds freemium won’t get paid customers

Providing a free or lower cost trial of a paid version of a service for a short period helps the take-up of the paid version. But freemium models aren't quite so successful, a new paper, Experience Effect in the Impact of Free Trial Promotions, published in Management Science, claims. 

A trial of full features helps to increase the users’ awareness and appreciation of the wider range of product features, the paper finds. The research findings also suggest that to increase the impact of free-trial campaigns, marketers can leverage the ‘power of sharing’ by including a sharing feature in their offer.

“It might seem like a waste of resources to provide a free trial to existing customers, but that is not what we found,” said University of Technology Sydney marketing researcher, Dr Hilbun Ho. 

The study looked at what happened when a telco offered free mobile phone data to existing users, and found it was an effective way to increase sales, particularly if customers could share the offer with friends. 

“We expected low usage customers would be more likely to take up the offer and increase their usage. However, low-usage customers were largely unresponsive to the free trial,” Dr Ho said. Many of the customers who took up the offer continued their higher usage after the free trial campaign ended, increasing sales for the company.

Previous studies have shown businesses can save five times more money when they retain customers rather than look for new ones and the free trial study suggests it may help retain customers and also grow future sales.

The results have important implications particularly for companies that offer online ‘experience products’ such as gaming, collaboration tools or music streaming services, where customers need to experience it to appreciate its value.

But when companies promote products, such as software or online services, using a ‘freemium’ model, where the basic version is free but customers have to pay to get access to more advanced functions or features, it leaves a problem, according to Dr Ho. 

“These companies often face challenges in migrating customers from the free version to the paid version, because the free version customers have no experience in using the advanced functions that are only accessible to paid users,” he said.

Follow CMO on Twitter: @CMOAustralia, take part in the CMO conversation on LinkedIn: CMO ANZ, follow our regular updates via CMO Australia's Linkedin company page, or join us on Facebook: https://www.facebook.com/CMOAustralia