Freemium Pricing: Evidence from a Large-scale Field Experiment

Humboldt University Berlin, School of Business and Economics, Institute of Marketing Working Paper

43 Pages Posted: 21 Dec 2016  

Julian Runge

Humboldt University of Berlin - School of Business and Economics

Stefan Wagner

ESMT European School of Management and Technology

Jörg Claussen

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management); Copenhagen Business School - Department of Innovation and Organizational Economics

Daniel Klapper

Humboldt University Berlin - School of Business and Economics

Date Written: December 21, 2016

Abstract

Firms commonly run field experiments to improve their freemium pricing schemes. However, they often lack a framework for analysis that goes beyond directly measurable outcomes and focuses on longer term profit. We aim to fill this gap by structuring existing knowledge on freemium pricing into a stylized framework. We apply the proposed framework in the analysis of a field experiment that contrasts three variations of a freemium pricing scheme and comprises about 300,000 users of a software application. Our findings indicate that a reduction of free product features increases conversion as well as viral activity, but reduces usage – which is in line with the framework’s predictions. Additional back-of-the-envelope profit estimations suggest that managers were overly optimistic about positive externalities from usage and viral activity in their choice of pricing scheme, leading them to give too much of their product away for free. Our framework and its exemplary application can be a remedy.

Keywords: Freemium, pricing, digitization, field experimentation

JEL Classification: M30, M20

Suggested Citation

Runge, Julian and Wagner, Stefan and Claussen, Jörg and Klapper, Daniel, Freemium Pricing: Evidence from a Large-scale Field Experiment (December 21, 2016). Humboldt University Berlin, School of Business and Economics, Institute of Marketing Working Paper. Available at SSRN: https://ssrn.com/abstract=2888471 or http://dx.doi.org/10.2139/ssrn.2888471

Julian Runge (Contact Author)

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

Stefan Wagner

ESMT European School of Management and Technology ( email )

Schlossplatz 1
10117 Berlin
Germany

Jörg Claussen

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, 80539
Germany

Copenhagen Business School - Department of Innovation and Organizational Economics ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Daniel Klapper

Humboldt University Berlin - School of Business and Economics ( email )

Spandauer Str.1
Berlin, Berlin 10178
Germany

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