The Freemium Effect: Why Consumers Perceive More Value with Free than with Premium Offers

Thomas Niemand · Sebastian Tischer · Tina Fritzsche · Sascha Kraus

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Consumer Market Behavior and Pricing Economic and Environmental Valuation Digital Platforms and Economics

Abstract

Continuous evolution of digital technology not only changes the way people communicate, it also fundamentally alters how companies generate revenue. Services like Dropbox, Skype, LinkedIn or Spotify successfully implement the freemium business model of concurrent free and priced premium versions. This paper will investigate the consequences of offering basic features for free. Based on research complementing the relationship between quality and price, the following provides evidence for an inversed “freemium” effect. Free services provide more value than premium services, not less. Results from a set of experimental studies show that consumers perceive fewer sacrifices and more benefits with free rather than premium offers. Consequently, decision-making variables (value, intention, and willingness to pay) favor the free versions. Implications for practice and research are provided building upon these results.

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2016Buying behaviors when similar products are available under pay-what-you-want and posted price conditions: Field-experimental evidence

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