IDEAS home Printed from https://ideas.repec.org/a/eee/joreco/v81y2024ics0969698924003096.html

Precision marketing for newly-launched products: How to offer free trials to consumers?

Author

Listed:
  • Mao, Zhaofang
  • Yuan, Ruiying
  • Wang, Jianan

Abstract

Firms often offer free trials to potential consumers to reduce their valuation uncertainty when launching new products. With precision marketing technology, firms can even target specific consumers (i.e., high- or low-valuation ones) for free trial promotion. This study focuses on firms whose costs incurred by free trials cannot be ignored. Considering the impact of the trial length and reviews posted by consumers engaging in free trials, we investigate a firm's incentives to offer free trials when launching new products, and analyze the effectiveness of conducting precision marketing. Our analysis results identify three effects (experiencer size effect, review effect, trial cost) triggered by offering free trials. The effects lead to the results that product quality, consumer uncertainty, and experiencer size jointly influence the firm's decision on the optimal trial strategy. Moreover, the degree of consumer uncertainty directly affects the complexity of the firm's optimal free trial strategy set. Unlike the intuition that precision marketing is always beneficial to the firm by targeting specific consumers, we find that the firm will not conduct precision marketing when consumer uncertainty is relatively low, or when consumer uncertainty is high but the experiencer size and product quality are relatively low.

Suggested Citation

  • Mao, Zhaofang & Yuan, Ruiying & Wang, Jianan, 2024. "Precision marketing for newly-launched products: How to offer free trials to consumers?," Journal of Retailing and Consumer Services, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:joreco:v:81:y:2024:i:c:s0969698924003096
    DOI: 10.1016/j.jretconser.2024.104013
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0969698924003096
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jretconser.2024.104013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Y. Shi & S. Fernandes & R. Panda & V.G. Venkatesh & B.N. Swar, 2022. "Measuring the Impact of Online Reviews on Consumer Purchase Decisions \textendash A Scale Development Study," Post-Print hal-04452847, HAL.
    2. Liu, Weihua & Yan, Xiaoyu & Li, Xiang & Wei, Wanying, 2020. "The impacts of market size and data-driven marketing on the sales mode selection in an Internet platform based supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 136(C).
    3. Michelle Y. Lu & Jiwoong Shin, 2018. "A Model of Two-Sided Costly Communication for Building New Product Category Demand," Marketing Science, INFORMS, vol. 37(3), pages 382-402, May.
    4. Chrysanthos Dellarocas, 2006. "Strategic Manipulation of Internet Opinion Forums: Implications for Consumers and Firms," Management Science, INFORMS, vol. 52(10), pages 1577-1593, October.
    5. Anu G. Aggarwal & Aakash, 2020. "Analysing the interrelationship between online reviews and sales: the role of review length and sentiment index in electronic markets," International Journal of Internet Marketing and Advertising, Inderscience Enterprises Ltd, vol. 14(4), pages 361-376.
    6. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    7. Jafarzadeh Ghazi, Amirhossein & Karray, Salma & Azad, Nader, 2023. "Price and quality competition while envisioning a quality-related product recall," European Journal of Operational Research, Elsevier, vol. 311(2), pages 486-501.
    8. Liu, Weihua & Liang, Yanjie & Tang, Ou & Shi, Victor & Liu, Xinyun, 2021. "Cooperate or not? Strategic analysis of platform interactions considering market power and precision marketing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 154(C).
    9. Xu Guan & Yulan Wang & Zelong Yi & Ying‐Ju Chen, 2020. "Inducing Consumer Online Reviews Via Disclosure," Production and Operations Management, Production and Operations Management Society, vol. 29(8), pages 1956-1971, August.
    10. Niu, Baozhuang & Yue, Haoran & Luo, Huajiang & Shang, Weixin, 2019. "Pricing for newly-launched experience products: Free trial or not?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 126(C), pages 149-176.
    11. Xia, Liangjie & Li, Kang & Wang, Jun & Xia, Yi & Qin, Juanjuan, 2024. "Carbon emission reduction and precision marketing decisions of a platform supply chain," International Journal of Production Economics, Elsevier, vol. 268(C).
    12. Zan Zhang & Guofang Nan & Minqiang Li & Yong Tan, 2022. "Competitive Entry of Information Goods Under Quality Uncertainty," Management Science, INFORMS, vol. 68(4), pages 2869-2888, April.
    13. Eugene W. Anderson & Mary W. Sullivan, 1993. "The Antecedents and Consequences of Customer Satisfaction for Firms," Marketing Science, INFORMS, vol. 12(2), pages 125-143.
    14. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    15. Cheng, Hsing Kenneth & Tang, Qian Candy, 2010. "Free trial or no free trial: Optimal software product design with network effects," European Journal of Operational Research, Elsevier, vol. 205(2), pages 437-447, September.
    16. Hsing Kenneth Cheng & Yipeng Liu, 2012. "Optimal Software Free Trial Strategy: The Impact of Network Externalities and Consumer Uncertainty," Information Systems Research, INFORMS, vol. 23(2), pages 488-504, June.
    17. Hou, Rui & Zhao, You & Zhu, Mengqiang & Lin, Xiaogang, 2021. "Price and quality decisions in a vertically-differentiated supply chain with an “Online-to-Store†channel," Journal of Retailing and Consumer Services, Elsevier, vol. 62(C).
    18. Bram Foubert & Els Gijsbrechts, 2016. "Try It, You’ll Like It—Or Will You? The Perils of Early Free-Trial Promotions for High-Tech Service Adoption," Marketing Science, INFORMS, vol. 35(5), pages 810-826, September.
    19. Jiwoong Shin & Jungju Yu, 2021. "Targeted Advertising and Consumer Inference," Marketing Science, INFORMS, vol. 40(5), pages 900-922, September.
    20. Qiao, Haike & Su, Qin, 2021. "Distribution channel and licensing strategy choice considering consumer online reviews in a closed-loop supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 151(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Meijian Yang & Enjun Xia & Yang Yang, 2023. "Deterring Sellers’ Cheap Talk Actions via Online Rating Schemes," Mathematics, MDPI, vol. 11(6), pages 1-16, March.
    2. Xu Guan & Yulan Wang & Zelong Yi & Ying‐Ju Chen, 2020. "Inducing Consumer Online Reviews Via Disclosure," Production and Operations Management, Production and Operations Management Society, vol. 29(8), pages 1956-1971, August.
    3. Angela Aerry Choi & Daegon Cho & Dobin Yim & Jae Yun Moon & Wonseok Oh, 2019. "When Seeing Helps Believing: The Interactive Effects of Previews and Reviews on E-Book Purchases," Information Systems Research, INFORMS, vol. 30(4), pages 1164-1183, December.
    4. Yanqing Han & Zongming Zhang, 2018. "Impact of free sampling on product diffusion based on Bass model," Electronic Commerce Research, Springer, vol. 18(1), pages 125-141, March.
    5. Xia, Liangjie & Li, Kang & Wang, Jun & Xia, Yi & Qin, Juanjuan, 2024. "Carbon emission reduction and precision marketing decisions of a platform supply chain," International Journal of Production Economics, Elsevier, vol. 268(C).
    6. Li, Jingyan & Wu, Jie & Zhang, Juzhi & Ji, Xiang, 2024. "Freemium design: Optimal tier differentiation models for content platforms," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 188(C).
    7. Zibo Liu & Zhijie Lin & Ying Zhang & Yong Tan, 2022. "The Signaling Effect of Sampling Size in Physical Goods Sampling Via Online Channels," Production and Operations Management, Production and Operations Management Society, vol. 31(2), pages 529-546, February.
    8. Liu, Chun-Yi & Oliveira, Fernando S. & You, Tian-Hui, 2024. "The impact of platform audits on the manipulation of online reviews," International Journal of Production Economics, Elsevier, vol. 275(C).
    9. Guan, Xu & Wang, Yulan, 2022. "Quality disclosure in a competitive environment with consumer’s elation and disappointment," Omega, Elsevier, vol. 108(C).
    10. Sadat Reza & Hillbun Ho & Rich Ling & Hongyan Shi, 2021. "Experience Effect in the Impact of Free Trial Promotions," Management Science, INFORMS, vol. 67(3), pages 1648-1669, March.
    11. Liu Yang & Francis de Véricourt & Peng Sun, 2014. "Time-Based Competition with Benchmark Effects," Manufacturing & Service Operations Management, INFORMS, vol. 16(1), pages 119-132, February.
    12. Shunda, Nicholas, 2009. "Auctions with a buy price: The case of reference-dependent preferences," Games and Economic Behavior, Elsevier, vol. 67(2), pages 645-664, November.
    13. Arlen, Jennifer H. & Tontrup, Stephan, 2015. "Strategic Bias Shifting: Herding as a Behaviorally Rational Response to Regret Aversion," EconStor Preprints 335573, ZBW - Leibniz Information Centre for Economics.
    14. Ghosal, Sayantan & Dalton, Patricio, 2013. "Characterizing Behavioral Decisions with Choice Data," CAGE Online Working Paper Series 107, Competitive Advantage in the Global Economy (CAGE).
    15. T. Tony Ke & Jiwoong Shin & Jungju Yu, 2023. "A Model of Product Portfolio Design: Guiding Consumer Search Through Brand Positioning," Marketing Science, INFORMS, vol. 42(6), pages 1101-1124, November.
    16. Vishal Gaur & Young-Hoon Park, 2007. "Asymmetric Consumer Learning and Inventory Competition," Management Science, INFORMS, vol. 53(2), pages 227-240, February.
    17. Mahdi Mahmoudzadeh, 2020. "On the Non‐Equivalence of Trade‐ins and Upgrades in the Presence of Framing Effect: Experimental Evidence and Implications for Theory," Production and Operations Management, Production and Operations Management Society, vol. 29(2), pages 330-352, February.
    18. Alekseev, Aleksandr & Sokolov, Mikhail V., 2021. "How to measure the average rate of change?," Mathematical Social Sciences, Elsevier, vol. 113(C), pages 43-59.
    19. Kovach, Matthew & Suleymanov, Elchin, 2023. "Reference dependence and random attention," Journal of Economic Behavior & Organization, Elsevier, vol. 215(C), pages 421-441.
    20. Martin, Vincent, 2017. "When to quit: Narrow bracketing and reference dependence in taxi drivers," Journal of Economic Behavior & Organization, Elsevier, vol. 144(C), pages 166-187.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:joreco:v:81:y:2024:i:c:s0969698924003096. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-retailing-and-consumer-services .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.