Research: Balancing the Returns of Offering Free Information

February 15, 2011

Offering free samples is a time-tested marketing technique. In the online information goods category, however, practices concerning completely free offerings vs. free samples along with paid access are still being developed and debated.

Columbia marketing professors Oded Koenigsberg and Don Lehmann, along with University of Zurich professors Florian Stahl and Daniel Halbheer, examined how to optimize free sampling and paid access for “single-use, single-edition content” (e.g. a novel or an article). They created a model that allows a firm to calculate the optimal sampling level based on:

  • The price of the full content;
  • Advertising revenues from the free samples and paid versions; and,
  • The affect on consumer valuation, and therefore demand, caused by the size, quantity, and quality of free samples

The model considered, in particular, how a consumer’s expected quality of a product is updated by the delivered experience of a sample of the product.

The researchers then compared their model against empirical datasets from German media web sites. They found that, in cases where the quality of the sample exceeds the consumer’s expected quality, some firms were not offering large enough samples to entice readers to commit to purchase the full paid content, and thus they did not realize all the revenue they could generate.

If you are managing such an enterprise, you may want to download the paper (.pdf) to see what implications this model has for your own company.

BY MATTHEW QUINT

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