Try It, You'll Like It-Or Will You? The Perils of Early Free-Trial Promotions for High-Tech Service Adoption

The proliferation of free trials for high-tech services calls for a careful study of their effectiveness, and the drivers thereof. On one hand, free trials can generate new paying subscribers by allowing consumers to become acquainted with the service free of charge. On the other hand, a disappointing trial experience might alienate potential customers, when they decide not to adopt the system and are lost for good. This dilemma is particularly worrisome in early periods, when service quality has not been "tried and tested" in the field, and breakdowns occur. We accommodate these phenomena in a model of consumers' free-trial and regular adoption decisions. Among other effects, it incorporates usage-and word-of-mouth-based learning about quality in a setting where quality itself is evolving. Consumers are forward-looking in that they account for changes in quality and anticipate uncertainty reduction due to trial usage. We estimate our model and run simulations on the basis of a rich and unique data set that incorporates customers' trial subscription, adoption, and usage behavior for an interactive digital television service. The results underscore that free trials constitute a double-edged sword, and that timing and consumers' usage intensity during the trial are key to the effectiveness of these promotions. Implications for managers are also discussed.