The authors’ research provides evidence that for “experience” goods– those where value is only discovered after consumption, for example a holiday destination, a movie, or new software — free trial campaigns should be deliberately targeting existing customers of medium to high usage. For this type of goods and services, relative to non-users, customers with some exposure to the product are more responsive to free-trial campaigns than other customers.
Everybody loves a freebie. That’s probably why so many start-ups and even well-known brands often use free trials to draw customers’ attention and introduce them to new products. Yet free trials often fail to convert customers to paying ones. Even when they do convert, customers obtained using free trials can be significantly less valuable than other customers. The problem, our recent research suggests, is that too many free trial campaigns aim to bring new customers to a brand’s products rather than enticing existing customers to spend more. If this is true, our research can help marketers find the sweet spot for free trials.
When freebies work
In our study, we collaborated with a major mobile phone operator in a developing market, where the average usage of mobile data services was much lower compared to the developed market. The marketing team of the company sent out 60MB free mobile data — about an hour of low-resolution video streaming through the web — offer to 60,000 subscribers of their mobile phone services. The offer receiving subscribers were randomly chosen from the pool of subscribers who used smart-phones and used SMS services but had different levels of exposure to using mobile data, including non-users and heavy-users.
We anticipated that nonusers of mobile data would be more likely to redeem the offer and increase usage after the campaign. To our surprise, it turned out that the low usage customers were largely unresponsive to the trial offer and the campaign failed to stimulate higher usage among these customers. Customers familiar with using a lot of data did take advantage of the trial offer, but we found that their data usage didn’t change during the trial period. Our third group of customers — those who use a medium to high amount of data regularly — were most likely to redeem the offer and we also found that their data usage increased after the campaign. Lastly, we also found that peer effect matters. When the company gave some customers the option to forward the free trial to peers (who were also existing customers) they were more likely to redeem the offer.
Our research provides evidence that for “experience” goods — for example a holiday destination, a movie, or new software, where value is only discovered after consumption — free trial campaigns should be deliberately targeting existing customers of medium to high usage. Our study reveals that for this type of goods and services, relative to non-users, customers with some exposure to the product are more responsive to free-trial campaigns.
Implications for marketing managers
When software companies promote their products, they frequently use the “freemium” model which offers a free trial with limited functions to customers. For more advanced functions or features, customers will have to pay to get access. These companies often face challenges in migrating customers from the free version to the paid version, because free version customers have no experience in using the advanced functions that are only accessible to paid users. Our research shows that software companies might have more success providing access to the paid-for version for free, or at a lower cost, for a short promotion period. This will likely increase trial users’ utility of the product, inducing the take up of the paid-for version later.
Another interesting finding shows how social networks influence marketing. To increase the impact of free trial campaigns, marketers could leverage the “power of sharing” by including a sharing feature in the offer. Our study shows that if the target audience were able to forward the offer to their peers, then their offer redemption rates increased by more than a staggering 50%. In other words, the sharer was also more likely to take up the offer, probably due to the positive reinforcement through their action of sharing.
Finally, policy makers may find our research relevant to reducing the “digital divide” within society. A large portion of the global population and particularly in emerging and developing economies, still do not have access to the Internet, which affects their ability to take advantage of Internet connectivity. Our research shows that offering free mobile data is not adequate to stimulate individuals’ Internet use. Policy makers should offer education programs to teach the digitally illiterate how to benefit from mobile data through the use of user-friendly apps and digital platforms, ultimately changing their awareness and perceptions of the practical value of Internet accessibility.