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The challenge of retaining customers acquired with free trials
Datta,H. Foubert,B. van Heerde,H.J.
Datta,H.
Foubert,B.
van Heerde,H.J.
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.
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2015-04
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JMR12_0160_WebPosting.pdf
Adobe PDF, 1.5 MB
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Keywords
Free Trials, Customer Retention, Usage Behavior, Customer Lifetime Value, Customer Equity, Acquisition Mode, Selection Effects, Endogeneity, Econometrics
Citation
Datta, H, Foubert, B & van Heerde, H J 2015, 'The challenge of retaining customers acquired with free trials', Journal of Marketing Research, vol. 52, no. 2, pp. 217-234. https://doi.org/10.1509/jmr.12.0160