Moving from Free to Fee: How Online Firms Market to Change Their Business Model Successfully

Pauwels, Koen; Weiss, Allen M.

doi:10.1509/jmkg.72.3.14

Cited by 124 publications

(64 citation statements)

References 46 publications

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“…Pricing capability is needed to determine how to charge for new services and possibly change the revenue model of existing services, such as moving from free to fee (Pauwels and Weiss, 2008;Witell and Löfgren, 2013). Many product-centric firms that traditionally gave away services for free to support their product sales struggle to change their revenue models and start charging for their value facilitation and cocreation (Kindström and Kowalkowski, 2009;Reinartz and Ulaga, 2008).…”

Section: Revenue Modelmentioning

confidence: 99%

Service innovation in product-centric firms: a multidimensional business model perspective

Kindström

Kowalkowski

2014

Journal of Business &Amp; Industrial Marketing

367

326

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Purpose-This article investigates the nature and characteristics of business model elements required for successful service innovation. The authors examine which unique resources and capabilities product-centric firms should develop and deploy to pursue service innovation.Design/methodology/approach-Data collected from several research projects support iterations across empirical data and theory, in an abductive process. Empirical data come from product-centric firms; interviews and focus groups were the main data collection methods.Findings-Specific resources and capabilities are needed for the proposed business model elements, as defined by the overarching strategy and structure. Firms can approach the process of service innovation from different starting points and sequences, depending on the context.Research limitations/implications-Because it takes a synthesizing approach, this research lacks some detail. By taking a business model approach with a holistic perspective, it forgoes detailed descriptions to provide greater breadth.Practical implications-Managers can use business models as tools to visualize changes, which should increase internal transparency, understanding, and awareness of service opportunities and necessary changes. Dependencies exist among elements; a change in one element likely affects the others. This study provides insights into which efforts are necessary and offers managers a guiding framework.Originality/value-By providing a multidimensional perspective on service innovation, this study merges various previous research into a synthesized discussion. Combining a resources and capabilities perspective with a business model framework also leads to new insights regarding service innovation and associated activities. Paper type-Research paper

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Section: Revenue Modelmentioning

confidence: 99%

Service innovation in product-centric firms: a multidimensional business model perspective

Kindström

Kowalkowski

2014

Journal of Business &Amp; Industrial Marketing

367

326

View full text Add to dashboard Cite

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“…Similarly, stores such as Costco and other supermarkets frequently provide food samples to consumers and observe positive outcomes (Notte 2011) and repeat purchase behavior (Hein 2009). Several research studies have also noted both short-term and long-term positive effects of free product sampling (Pauwels and Weiss 2008).…”

Section: Managerial and Regulatory Implicationsmentioning

confidence: 99%

Making Choices While Smelling, Tasting, and Listening: The Role of Sensory (Dis)similarity When Sequentially Sampling Products

Biswas

Labrecque

Lehmann

et al. 2014

Journal of Marketing

113

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Marketers are increasingly allowing consumers to sample sensory-rich experiential products before making purchase decisions. The results of seven experimental studies (two conducted in field settings, three conducted in a laboratory, and two conducted online) demonstrate that the order in which consumers sample products and the level of (dis)similarity between the sensory cues of the products influence choices. In the absence of any moderators, when sampling a sequence of sensory-rich experiential products (e.g., fragrances, chocolates, flavored beverages, music) with similar sensory cues (e.g., smell, taste, color, sound), consumers prefer the first product in the sequence. However, when sampling a sequence of products with dissimilar sensory cues, consumers prefer the last product. These findings (1) contribute to a better understanding of the role of sequential sensory cues on consumer choice formation, (2) have implications for effects related to sensory habituation and sensory trace fading, and (3) help resolve apparent inconsistencies in prior research on order effects in the context of choices for sequentially sampled experiential products.

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“…In some cases, this decision is equal to setting one global price (for instance, if the payment of a subscription fee allows users to access all premium features, e.g. Lee, Kumar and Gupta 2015;Pauwels and Weiss 2008) …”

Section: Firm Choicementioning

confidence: 99%

Freemium Pricing: Evidence from a Large-scale Field Experiment

et al. 2017

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AcknowledgementsWe wish to thank Michaela Draganska for helpful comments. We are further grateful for helpful discussions with: Art Owen, Stephan Seiler, Udo Wagner, Eric Seufert, participants of the Conference on Digital Experimentation at MIT, participants of the Media Economics Workshop at ETH Zuerich and seminar participants at the Institute of Marketing of Humboldt University Berlin and at the Institute for Strategy, Technology and Organization of Ludwig-Maximilians-University Munich. Finally, we wish to extend our heartfelt gratitude to Wooga for data access and highly fruitful cooperation; in particular, we wish to thank Maija Marincenko, Timothy Frohner, Cedrik Neumann and Anton Troynikov.Electronic copy available at: https://ssrn.com/abstract=2888471 2 AbstractFirms 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, experimentation 3 Digital products are characterized by high cost to produce the first copy and very low marginal cost of reproduction (Arrow 1962). This particular cost structure has given rise to freemium pricing -i.e., a hybrid pricing scheme that combines free use of a basic version of the product in perpetuity, with premium upgrades that require the payment of a fee (Anderson 2009;Pauwels and Weiss 2008). Early indications that such pricing strategies are promising were presented by Scott (1976) and more recently by Bawa and Shoemaker (2004).Freemium pricing is widely adopted by technology companies for their software applications as it allows them to acquire a large number of users at low cost (Lee, Kumar and Gupta 2015). Despite the widespread use of freemium pricing, many firms find it Firms therefore regularly run field experiments ('A/B tests') to improve their pricing scheme (Levitt et al. 2016;Seufert 2014;Wedel and Kannan 2016). In evaluating these experiments -due to the aforementioned complexities -managers are rarely guided by an assessment of (multi-period) profit, but mostly base their evaluation on performance indicators that are directly measurable (Seufert 2014). The scientific literature on 4 freemium p...

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Moving from Free to Fee: How Online Firms Market to Change Their Business Model Successfully

Cited by 124 publications

References 46 publications

Service innovation in product-centric firms: a multidimensional business model perspective

Service innovation in product-centric firms: a multidimensional business model perspective

Making Choices While Smelling, Tasting, and Listening: The Role of Sensory (Dis)similarity When Sequentially Sampling Products

Freemium Pricing: Evidence from a Large-scale Field Experiment

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