The Implications of Premium Version Adoption on Customer Relationship Management: An Empirical Study of mHealth User Engagement and Retention

Abstract

There has been a rapid rise in new mobile technologies at improving health-related behaviors. Many of these mobile health (i.e., mHealth) applications use freemium business models (i.e., availability of free and premium versions for the app), yet little is known about the impact that freemium has on user engagement and retention. Using large-scale data from a popular mobile fitness application, we study the differences in tracking propensity and inertia between free-version and premium users. Our analysis reveals that premium adoption leads to a boost in user engagement (i.e., more calorie tracking activity) and retention (i.e., lower likelihood to quit using the application entirely). To address the endogeneity issues in our empirical estimation, we adopt a commonly used instrument-free Gaussian copula approach. Estimates from this method reveal that the existence of freemium has direct implications for customer relationship management, as differences in the inferred premium effect across users (based on their historical tracking patterns) can provide opportunities for user segmentation.

Keywords: Behavioral Analytics; Commitment Device; Consistent Behavior; Habit; Freemium; Health and Wellness; Mobile Health Application Design; Self-Control.