Price promotions and “freemium” app monetization
Julian Runge (),
Jonathan Levav () and
Harikesh S. Nair ()
Additional contact information
Julian Runge: Duke University
Jonathan Levav: Stanford University
Harikesh S. Nair: Stanford University
Quantitative Marketing and Economics (QME), 2022, vol. 20, issue 2, No 1, 139 pages
Abstract The “freemium” model for digital goods involves selling a base version of the product for free, and making premium product features available to users only on payment. The success of the model is predicated on the ability to profitably convert free users to paying ones. Price promotions (or “sales”) are often used in freemium to induce this conversion. However, the causal effect of exposing consumers to such inter-temporal price variation is unclear. While sales can generate beneficial short-run conversion, they may be harmful in the long-run if consumers inter-temporally substitute purchases to periods with low prices, or use them as signals of low product quality. These long-run concerns may be accentuated in freemium apps, where the base version is sold for free, so that sales form extreme price cuts on the overall product combination. We work with the seller of a free-to-play video game to randomize entering cohorts of users into treatment and control conditions in which promotions for in-game purchases are turned on or off. We observe complete user behavior for half a year, including purchases and consumption of in-game goods, which, in contrast to much of the extant literature, enables us to assess possible substitution over time in consumption directly. We find that conversion and revenue improve in the treatment group; and detect no evidence of harmful inter-temporal substitution or negative inferences about quality from exposure to price variation, suggesting that promotions are profitable. We conjecture that the zero price of the base product that makes its consumption virtually costless, combined with the complementarity between the base product and premium features can help explain this. To the extent that this holds across freemium contexts, the positive effects of promotions documented here may hold more generally.
Keywords: Freemium; App monetization; Pricing; Price promotions; Sales; Free-to-play games; Video games; Field experiments (search for similar items in EconPapers)
JEL-codes: L11 M31 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s11129-022-09248-3 Abstract (text/html)
Access to the full text of the articles in this series is restricted.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:qmktec:v:20:y:2022:i:2:d:10.1007_s11129-022-09248-3
Ordering information: This journal article can be ordered from
http://www.springer. ... ng/journal/11129/PS2
Access Statistics for this article
Quantitative Marketing and Economics (QME) is currently edited by Pradeep Chintagunta
More articles in Quantitative Marketing and Economics (QME) from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().