Free trials return low profit but high engagement

Massey University marketing professor Professor Harald van Heerde says free trial customers are worth considerably less, but are more responsive to advertising and direct marketing activity.

Customers who sign up to free trials are worth considerably less than their full-paying equivalents, a new survey has found.

Massey University marketing professor Professor Harald van Heerde and his co-researchers from Tilburg and Maastricht Universities examined household data from 16,512 customers of a large European digital TV provider in their research, published in the paper 'The challenge of retaining customers acquired with free trials'.

The study found many free-trial customers disappeared swiftly after the trial period, staying only one-third as long as regular customers, but were more responsive to marketing efforts.

"We found that half of the free-trial customers had left the service within two years and that the total profit received from these customers was around 59 per cent lower than that received from standard customers," van Heerde said.

"Because of their higher turnover rate, free-trial customers are, at first glance, worth considerably less, but the study also found they are more responsive to advertising and direct marketing activity.

"This is because they are less certain about their decision to sign up than regular customers so they look closely at whether they are using the service enough."

Netflix offers free one-month trials in New Zealand, as does Sky's Neon and Spark's Lightbox.

A screenshot promoting Neon's free 30-day trial.

A Netflix spokesman said their 30-trial reflected their confidence in the SVOD service (streaming video on demand).

"The goal is to offer something for everyone and to continually add great new originals, movies and TV shows to convert trial customers into happy and committed Netflix members," the spokesman said.

Van Heerde said keeping customers informed about their useage level could be the key to keeping free-trial customers because it reminded them of the value they were getting out of the service,

In the paper, the researchers calculated that a free trial offer would need to attract almost 2.5 times the number of new customers than would otherwise be expected to join to make the offer financially worthwhile.

Consumers had little to be wary of with free trials, except for the hassle of cancelling the service, van Heerde said.

However, he said some companies had innovative ways of locking customers in.

"I think Spotify's success has been due, to a large extent, to the free trails they offer.

"People use it and then get hooked because they want to keep accessing the personalised music lists they have created.

"Dropbox is very smart too. It gives free trials with lots of storage, which locks you in if you want to continue sharing those large files with others after the free trial period ends."