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

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.