The zero‐price effect in freemium business models: The moderating effects of free mentality and price–quality inference

Abstract

In the digital world, many firms struggle in employing a freemium business model (simultaneously offering restricted free options and full featured premium options). Although this is an increasingly popular revenue strategy, conversion rates for premium options are relatively low as free options provide users an irrationally high value, the so‐called zero‐price effect. This study develops a framework of the zero‐price mechanism by shifting the attention to the more intuitive mode of decision making. When being confronted with freemium offers, users are expected to rely on different naïve intuitions, which diverge and, ironically, may even have opposite implications. This study identifies two central intuitions about freemium offers: a free mentality (the tendency to intuitively expect that all digital services should be available at no cost) and price–quality inference (the tendency to intuitively expect a positive relationship between price and quality). Individuals are expected to greatly vary in their degree of subscription to both intuitions. Even more important, it is this paper's overarching premise that the interplay between both opposing intuitions shapes user's response to freemium offers thereby providing a lever to tackle the issue of low conversions for premium options. The zero‐price framework is tested in two studies. First, the implicit association test identifies the opposing intuitions, and second, a choice‐based conjoint study for a highly relevant digital service (media streaming) examines the catalyzing role of both intuitions as well as their intricate interplay. Implications for marketing theory and directives for future research are developed.

Effect of Prior Gameplay Experience on the Relationships between Esports Gameplay Intention and Live Esports Streaming Content

“…The price value is the monetary cost to play esports games. Consider the "Freemium" business models [34], in which the basic functions of gameplay are provided free of charge and then a monetary cost is charged for the full gameplay experience. This may explain price value's significance in the low frequency group.…”

Personalized and Self-Management: Systematic Search and Evaluation Quality Factors and User Preference of Drug Reference Apps in Taiwan

“…However, such findings could be a sign of a moribund market for drug refence apps in Taiwan. We found that all drug reference apps are freemium, probably as a result of the public’s free mentality (the tendency to intuitively expect that all digital services are and should be available at no cost) toward health services in Taiwan [ 51 ]. Our findings provide information to create rigid demands that may spur on the drug reference app market in Taiwan.…”

Clustering Esports Gameplay Consumers via Game Experiences

“…As there are many esports games (e.g., League of Legends, Fortnite, Dota2, VALORANT, etc.) using the free-to-play strategy, which is based on "Freemium" business models (Niemand et al, 2019), purchasing for starting of gameplay may not be applied to general purchasing consumptions. In the esports context, the in-game items are typically for boosting the convenience of gameplay or are cosmetic items.…”

“…As such, esports consumers spend money on hardware and on in-game items. The consumption of in-game purchases is closely related to "Freemium" business models (Niemand et al, 2019), and the psychological background might be different to gaming hardware consumption. Future studies might need to consider in-game purchase consumption in the esports context to understand esports consumers' behavior in a more comprehensive perspective.…”