References (52)



The Impact of Free-Trial Acquisition on Customer Usage, Retention, and Lifetime Value

Hannes Datta

Tilburg University

Bram Foubert

Maastricht University

Harald J. Van Heerde

Massey University

July 26, 2013

Many service firms acquire customers by offering free-trial promotions. A crucial yet unexplored question is whether customers acquired by free trials differ systematically from regular customers in terms of their usage and retention behavior, and customer lifetime value. To address this issue, the authors conceptualize how a consumer’s retention decision is driven by marketing communication and usage. They next develop hypotheses how the effects of these drivers are moderated by the mode of acquisition, i.e., free-trial or regular. To test the hypotheses, the authors model a customer’s retention decision and usage behavior of both flat-rate (e.g., watching TV programs), and pay-per-use services (e.g., watching videos-on-demand). The model allows for unobserved heterogeneity, selection effects, and endogenous marketing instruments. On the basis of panel data from a digital TV service, the analyses demonstrate behavioral differences which make free-trial customers, on average, worth 55% less than regular customers. However, free-trial customers are more responsive to changes in marketing communication and usage rates, which offers opportunities to target marketing efforts and enhance customer equity.

Number of Pages in PDF File: 52

Keywords: Free Trials, Customer Retention, Usage Behavior, Customer Lifetime Value, Acquisition Mode, Gaussian Copulas, Econometrics

JEL Classification: M30, M31, M37

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Date posted: May 16, 2012 ; Last revised: December 23, 2013

Suggested Citation

Datta, Hannes and Foubert, Bram and van Heerde, Harald J., The Impact of Free-Trial Acquisition on Customer Usage, Retention, and Lifetime Value (July 26, 2013). Available at SSRN: http://ssrn.com/abstract=2060645 or http://dx.doi.org/10.2139/ssrn.2060645

Contact Information

Hannes Datta (Contact Author)
Tilburg University ( email )
Tilburg, 5000 LE
Bram Foubert
Maastricht University ( email )
P.O. Box 616
Maastricht, 6200MD
Harald J. Van Heerde
Massey University ( email )
Private Bag 102904
Auckland, Auckland 0745
New Zealand
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