The challenge of retaining customers acquired with free trials

B.P.J. Foubert, H. Datta*, H.J. van Heerde

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Many service firms acquire customers by offering free-trial promotions. However, a crucial challenge is to retain the customers acquired with these free trials. To address this challenge, firms need to understand how free-trial customers differ from regular customers in terms of their decisions to retain the service. This article conceptualizes how marketing communication and usage behavior drive customers' retention decisions and develops hypotheses about the impact of free-trial acquisition on this process. To test the hypotheses, the authors model a customer's retention and usage decisions, distinguishing usage of a flat-rate service and usage of a pay-per-use service. The model allows for unobserved heterogeneity and corrects for selection effects and endogeneity. Using household panel data from a digital television service, the authors find systematic behavioral differences that cause the average customer lifetime value of free-trial customers to be 59% lower than that of regular customers. However, free-trial customers are more responsive to marketing communication and usage rates, which offers opportunities to target marketing efforts and enhance retention rates, customer lifetime value, and customer equity.

data source: Transaction and usage data from European Telco. Data stored on harddisk. Can not be shared due to NDA.
Original languageEnglish
Pages (from-to)217-234
Number of pages18
JournalJournal of Marketing Research
Volume52
Issue number2
DOIs
Publication statusPublished - Apr 2015

Keywords

  • free trials
  • customer retention
  • usage behavior
  • customer lifetime value
  • acquisition mode
  • LIFETIME VALUE
  • SERVICE RETENTION
  • TARIFF STRUCTURE
  • SELF-SELECTION
  • ACQUISITION
  • PRODUCT
  • IMPACT
  • PROFITABILITY
  • MANAGEMENT
  • BEHAVIOR

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