How Freemium Pricing Affects User Activity
(A2019-9575)

AUTHORS

Simon Stolz, WHU - Otto Beisheim School of Management; Christian Schlereth, WHU - Otto Beisheim School of Management; Christina Hofmann-Stölting, HAW Hamburg

KEYWORDS

Freemium; Propensity Score Matching; User Activity

ABSTRACT

In online platform businesses, where network externalities are crucial, user activity is of paramount importance. Prices are a key lever to influence conversion rates, but also impact customer mind-set and behavior, beyond determining demand. In this research we explore how conversion prices impact usage activity in freemium businesses. We analyze data of a large-scale pricing experiment in a freemium business, and compare the subsequent usage patterns of converters between different price groups. We utilize propensity score matching and difference-in-difference analysis to derive an estimation for the causal effect of conversion. We find that after conversion among high- compared to low-price converters, login frequency increases by respectively 25%, compared to 20%, and network growth increases by 30%, compared to 20%. Our findings suggest that pricing in freemium businesses poses a trade-off between conversion rate and user activity.