Optimal Design of Free Samples for Digital Products and Services

Abstract

Recently, marketing of content (such as books, video and music), digital products and services (such as mobile games, and software), or cloud-based services has been increasingly stimulated by the provision of free samples of content or free games or limited-version of the software or service. While the motivation for providing free samples or a free limited-version of the digital service in any form is to increase revenue, the specific design of the sample through which the increased revenue is realized is an under-researched topic. In this paper, we develop a framework to understand how the design of free samples or service can influence revenues. Our research is motivated by the marketing decisions faced by a book publisher that provides free content samples for the books it sells. We develop an analytical model that determines the conditions under which it is optimal for content providers to provide free samples, and how the quality and other design parameters of the samples impact the sales of content. We test the normative implications of the model using empirical data obtained from a field experiment where we vary the design parameters of the free sample and based on the demand estimates provide recommendations for the firm on the optimal design of the sample. Our research finds that, rather than being substitutes, free samples of entire content, as in freemium, can be very effective in increasing revenues. Furthermore, we find that higher-quality samples have a greater impact on the sales of popular content.