Making money with paid content: empirical investigations on consumers’ reactions to free-to-fee switches and preview characteristics
Creators: name: Cziehso, Gerrit P.
Publisher: name: Technische Universität Dortmund
Year: 2017
Subjects: subject: Free-to-fee
subject: Price introduction
subject: Preview characteristics
subject: 330
subject: Medienwirtschaft
subject: Geschäftsmodell
subject: Online-Dienst
subject: Bezahl-Content
subject: Preispolitik

description: In an increasingly competitive environment, it becomes more and more difficult to earn money with digital content. Nevertheless, companies have to think about fee-based business models online to deal with changing environmental conditions (e.g., online newspaper providers). One way to earn money in a digital environment is a price introduction for content that was previously provided free of charge. When companies change their business model from free to paid content – also known as “free-to-fee switch” – it is generally an unexpected transition for customers; consequently, their willingness to pay is often low due to consumers’ “for free” mentality regarding content on the Internet (Sjøvaag 2015). In this regard, the manner of free-to-fee switches as well as the characteristics of the business model after the price is introduced (e.g., design of a preview version) are essential for companies’ success. While the relevant literature has focused on determinants of willingness to pay after a free-to-fee switch (e.g., Kammer et al. 2015) or consequences of price introductions (e.g., Oh et al. 2015, Pauwels and Weiss 2008), there is still a gap in fundamental knowledge about consumers’ psychological reactions to free-to-fee switches (Tuzovic et al. 2014). While price increases have been investigated over the last fifteen years (e.g., Campbell 1999a; Xia et al. 2004) research about price introductions and the effects of different forms of free-to-fee switches are still rare. Additionally, current literature has not focused on the unexpected aspect of price introductions. Moreover, only a few investigations, such as Kernan’s study (2004), shed light on the effects of different preview characteristics. While free-to-fee switches have a high relevance in the context of online content (e.g., online news providers), the effects of different preview characteristics are important for the success of a free-to-fee switch. Thus, the purpose of this dissertation is to fill the gap in the scholarly literature about price introductions by providing a better understanding of customers’ reactions and ways of minimizing their negative consequences and by showing how to use different preview characteristics after a free-to-fee switch. Moreover, this dissertation gains important insights for companies planning a free-to-fee switch or having experienced a switch in the past. In order to attain this purpose, this dissertation covers (1) the fundamental mechanisms of unexpected free-to-fee switches, (2) different forms of free-to-fee switches, and (3) previews for online newspaper providers that were affected by free-to-fee switches. This dissertation thus consists of three individual papers. The first paper sheds light on customers’ reactions to free-to-fee switches, including the un-derlying psychological mechanisms. Two empirical studies compare a free-to-fee switch with a conventional price increase to ascertain the characteristics of unexpected price introductions. These investigations further demonstrate the different ways of reducing customers’ negative reactions by providing a justification for the switch and announcing extra product value while introducing the price. The results of Paper 1 showed that key differences exist between free-to-fee switches and conventional price increases. Customers’ reactions are characterized by a stronger feeling of betrayal, anger, and lower purchase intentions compared to a conventional price increase. However, these negative consequences can be mitigated by providing a ratio-nale for the switch in forms of a justification or by adding extra value while introducing the new price. Companies have different possibilities when switching from free to fee. One possibility is a forced switch without the opportunity to use parts of the product for free after the switch. Another option is the freemium model, which allows customers to continue using a functionally restricted product version for free (Kumar 2014). The second paper compares these two switching options and considers different feature reduction levels of the free-version in the freemium switching option as well as the effect of providing a justification for the switch. The results showed that using freemium is a double-edged sword; on the one hand, the possibility of giving customers a choice leads to better attitudes but, on the other hand, it reduces purchase intents. Additionally, the findings showed that companies should use an average functionality for the free-version in a freemium switch to obtain the desired positive effects on attitudes. Moreover, companies should work with a justification for both switching types. Many companies choose a freemium business model after a free-to-fee switch (e.g., online newspaper providers) in the form of a free-preview version (e.g., short teaser articles) alongside the fee-based full-version (e.g., subscription to access the full content). However, uncertainty still remains concerning how to design preview versions after a free-to-fee switch. Therefore, the third paper focuses on different forms of preview ending types (interrupted vs. concluded ending) for text-based previews in four experimental investigations. Importantly, when companies make a decision to switch to a freemium business model different preview characteristics have to be considered. The results revealed that providing an interrupted preview ending for charged content causes emotional arousal that cannot be immediately resolved because of the required payment. This unresolved arousal leads to greater feelings of betrayal and results in lower purchases compared to a concluded preview ending. Conversely, the intention to read the entire article is greater after an interruption – but only when the article is for free. To summarize, the first paper provides evidence for the negative effects of free-to-fee switches, which can be minimized by justifying the switch. Paper 2 extends this knowledge by considering the possibility of a freemium switch. However, the improvement in attitudes caused by providing an additional free version is accompanied by a decrease in purchase intents. Paper 3 focuses on preview characteristics in freemium business models and illustrates that an interrupted preview ending (vs. a concluded one) is inferior for commercial text-based content.