When are free trials effective in acquiring customers?
Read the latest research in the impact of free trials for revenue growth.
Many well-known brands and start-ups offer a free trial to introduce their products or services and draw in new customers. But how effective is this model? Do free trials succeed at converting customers into paying ones?
Recent research indicates that too many free trials are attempting to bring in new customers rather than making customers spend more.
For ‘experience’ goods such as a holiday, a movie or new software, customers extract value only after the consumption of the good. For this type of goods, free trial campaigns have been found to be effective when targeted towards existing customers with medium to high usage. This is because customers who already have exposure to the product are more responsive to free trials.
Software companies tend to use the ‘freemium’ model, which involves a free trial with limited functions to customers. However, many of these companies find it challenging to convert these customers into paying ones because they have no experience using the advanced functions that only paid customers have access to. Instead, the same research suggests that software companies will have more success providing access to the paid version for free or at a lower cost for a limited promotion time. This maximises the customer’s use of the product and will entice them to take up a paid version thereafter.
Another interesting finding is that free trial offers which have been forwarded from a peer had redemption rates increased by more than 50%.
The conclusion? Understand the nature of your product or service and leverage free trial campaigns accordingly.
 See Sadat Reza, Hillbun Ho, Rich Ling, Hongyan Shi, “Experience Effect in the Impact of Free Trial Promotions,” Management Science, May 2020. https://doi.org/10.1287/mnsc.2020.3613