UCL School of Management is delighted to welcome Takeaki Sunada, UPENN, to host a seminar discussing “Customer Learning and Revenue-Maximizing Trial Design”.
Information goods providers often offer free trials in order to familiarize customers with the product. I develop a structural model of customer learning-by-using to evaluate the profitability of two widely used trial configurations: limiting duration of free usage (i.e. “time-locked trial”) and limiting access to certain features (i.e. “feature-limited trial”). Adopting a Bayesian learning framework, the model describes how product experience influences willingness to pay. It also allows one to identify key factors behind learning and to quantify the trade-offs the firm faces in designing trials. I estimate the model using a novel data set of videogame users’ play records. I find that a time-locked trial with five free sessions is the ideal design. The revenue implication depends on the rate of demand depreciation during the trial period. I also find that in this setting, providing a feature-limited trial is profitable only when combined with time limitations.