Study finds freemium won’t get paid customers

Free full-featured trial more effective than freemium model in retaining customers and keeping users on the paid version new study funds.

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   

Join the newsletter!

Or

Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.
Show Comments

Latest Videos

Conversations over a cuppa with CMO: ABC's Leisa Bacon

In this episode of Conversations over a Cuppa with CMO, ABC's director of audiences, Leisa Bacon, shares how she's navigated the COVID-19 crisis, the milestones and adaptability it's ushered in, and what sustained lessons there are for marketers as we start to recover.

More Videos

Very insightful. Executive leaders can let middle managers decide on the best course of action for the business and once these plans are ...

Abi TCA

CMOs: Let middle managers lead radical innovation

Read more

One failing brand tying up with another failing brand!

Realist

Binge and The Iconic launch Inactivewear clothing line

Read more

I am 56 years old and was diagnosed with Parkinson's disease after four years of decreasing mobility to the point of having family dress ...

Nancy Tunick

The personal digital approach that's helping Vision RT ride out the crisis

Read more

I am 57 and diagnosed in June 2009. I had a very long list of symptoms, some of which were. Keeping right arm close to my side while walk...

Nancy Tunick

Gartner survey: CMO spending hit by COVID-19

Read more

Audible did such a great job on their marketing and at the same time, there are no false promises. The support, quality, variety all good...

Vitaliy Lano

Audible's brand plan to build the value of audiobooks

Read more

Blog Posts

MYOD Dataset: Building a DAM

In my first article in this MYOD [Make Your Organisation Data-Driven] series, I articulated a one-line approach to successfully injecting data into your organisation’s DNA: Using a Dataset -> Skillset -> Mindset framework. This will take your people and processes on a journey to data actualisation.

Kshira Saagar

Group director of data science, Global Fashion Group

Business quiet? Now is the time to review your owned assets

For businesses and advertiser categories currently experiencing a slowdown in consumer activity, now is the optimal time to get started on projects that have been of high importance, but low urgency.

Olia Krivtchoun

CX discipline leader, Spark Foundry

Bottoms up: Lockdown lessons for an inverted marketing world

The effects of the coronavirus slammed the brakes on retail sales in pubs, clubs and restaurants. Fever-Tree’s Australia GM Andy Gaunt explains what they have learnt from some tricky months of trading

Andy Gaunt

General manager, Fever-Tree Australia and New Zealand

Sign in