What Would Make a Free Product an Even Better Deal? Zero Price Effects on End User Choice

Abstract

Zero priced products and an expanding set of choices in software have emerged as significant new features of software markets. These new features present an opportunity to understand and address the mechanisms that shape consumer choice in the presence of free and paid software products. We jointly investigate the moderating role of zero price effects on three dimensions of choice:

(1) product features,

(2) consumer characteristics, and

(3) context effects.

We investigate the three choice dimensions using the anchoring, assimilation and ego involvement mechanisms of social judgment theory (SJT). Using a stated preference approach, we designed and implemented a discrete choice experiment and modeled choice through a mixed multinomial logit model that allowed us to control for differences in user tastes without imposing restrictive assumptions. Our results revealed complementarities between zero price effect and utilitarian product features, yet no such effect was observed for product features that did not act directly on utility. On consumer characteristics dimension, we found that consumers’ price perceptions influenced demand for zero price software. Finally, market context influenced demand significantly - zero price products were more desirable in high price market context. Our study contributes to the IS literature on software product markets by investigating the mechanisms shaping the competition between free products, and by quantifying the role of product features, consumer characteristics, and context effects from a demand side perspective.

Keywords: Choice, Software Features, Zero Price, Discrete Choice Experiments, Mixed Multinomial Logit