The challenge of retaining customers acquired with free trials

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

Research output: Contribution to journalArticleScientificpeer-review

45 Citations (Scopus)
216 Downloads (Pure)

Abstract

Many service firms acquire customers by offering free-trial promotions. A crucial challenge is to retain 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 decision making to retain the service. This article conceptualizes how a customer’s retention decision is driven by marketing communication and usage behavior, 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 between 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. Based on household panel data from a digital TV service, the authors find systematic behavioral differences which make the average customer lifetime value (CLV) of free-trial customers 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, CLV, and customer equity.
Original languageEnglish
Pages (from-to)217-234
JournalJournal of Marketing Research
Volume52
Issue number2
Early online date31 Oct 2014
DOIs
Publication statusPublished - Apr 2015

Keywords

  • Free Trials
  • Customer Retention
  • Usage Behavior
  • Customer Lifetime Value
  • Customer Equity
  • Acquisition Mode
  • Selection Effects
  • Endogeneity
  • Econometrics

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