Experience Effect in the Impact of Free Trial Promotions

Abstract

Although the use of free samples is extensive across industries, the effects of free samples across individuals with varying levels of usage have yet to be systematically examined. The models discussed in the literature consider targeting only the current nonusers of a product. In this research, we examine the question of targeting the current users both analytically and empirically for an experience good. Our analytical discussions highlight the reasons why some current users may be effective targets for free-sample promotions. We then conduct an empirical analysis using a data set on pre- and post-free-sample promotion mobile data usage provided by a telecom firm. The empirical findings are consistent with our analytical results. Specifically, we find the initial usage level to be a key determinant of both the redemption rate of a free-sample offer and the subsequent change in usage owing to free-sample redemption. In our context, the redemption rate increased from the low-percentile users to the high-percentile users. We also find that the change in usage was (weakly) monotonically increasing up to the [Formula: see text] percentile of usage distribution. Beyond the [Formula: see text] percentile, the effect was generally not significant. We discuss the managerial and policy implications of our findings. This paper was accepted by Juanjuan Zhang, marketing.