Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    The Twofold Effect of Customer Retention in Freemium Settings
    04 Jan 2021Working Paper Summaries

    The Twofold Effect of Customer Retention in Freemium Settings

    by Eva Ascarza, Oded Netzer, and Julian Runge
    Many digital products offer “freemiums”: that is, part of the product for free, often with advertising, and an enhanced customer experience for payment. This research, in a mobile game context, shows the importance of recognizing the short- and long-term effects on customer retention when managing the tradeoffs between free and paid aspects of freemium products.
    LinkedIn
    Email

    Author Abstract

    The main tradeoff in designing freemium services is how much of the product to offer for free. At the heart of such a tradeoff is the balancing act of providing a valuable free product in order to acquire and engage consumers, while making the free product limited enough to entice some consumers to pay for the service. We argue that customer retention plays an important role in balancing this tradeoff, due to customer retention’s twofold effect in freemium services—it not only generates additional revenues from the advertising side but can also increase user’s monetization in the future—firms are often myopic in their retention efforts by not recognizing that by limiting the free product, the firm is not only risking monetary losses from the advertising side but is also suffering monetary losses from the premium side. We leverage a large-scale field experiment run in a mobile game context, where game difficulty was exogenously manipulated among customers at risk of churning. As expected, giving customers an easier game significantly decreases purchases in the specific round played. However, lowering the game difficulty not only increases short-term play and subsequent retention, but also increases customer spending from premium services both in the short- and long-run. We find substantial heterogeneity in the effect of reducing game difficulty, where customers who are more prone to making progress in the games exhibit stronger effects and customers who previously spent money on the game exhibit the strongest effect on in-app purchases. We leverage these insights to recommend personalized freemium product design strategies and show how the focal firm can further increase revenues from both advertising and premium services.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: November 2020
    • HBS Working Paper Number: 21-062
    • Faculty Unit(s): Marketing
      Trending
        • 17 Jan 2023
        • In Practice

        8 Trends to Watch in 2023

        • 25 Jan 2022
        • Research & Ideas

        More Proof That Money Can Buy Happiness (or a Life with Less Stress)

        • 25 Feb 2019
        • Research & Ideas

        How Gender Stereotypes Kill a Woman’s Self-Confidence

        • 02 Feb 2023
        • Research & Ideas

        Why We Still Need Twitter: How Social Media Holds Companies Accountable

        • 24 Jan 2023
        • Research & Ideas

        Passion at Work Is a Good Thing—But Only If Bosses Know How to Manage It

    Eva Ascarza
    Eva Ascarza
    Jakurski Family Associate Professor of Business Administration
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Marketing
    • Games, Gaming, and Gambling
    • Customers
    • Video Game
    • Entertainment and Recreation

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College