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Customer retention in freemium applications

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  • Nicholas Ross

    (University of San Francisco)

Abstract

Over the last decade, many software companies have moved away from selling traditional packaged goods and toward providing “freemium” services. Under this business model, companies give away their basic product and generate revenue by repeatedly selling additional features and content. With this movement, away from one-off transactions and toward longer-term, repeated customer relationships, businesses are increasingly using analytics to understand their customers’ behavior, with retention—a measure of the likelihood that a customer will return—being of particular importance. However, despite the value of measuring customer retention, there is no consensus on its definition. Using a unique dataset of freemium mobile games, this study compares and contrasts four commonly used retention measures and finds that a measure that takes into account when a user interacts with an application provides the highest correlation with future monetization. This study also provides empirical evidence of a positive relationship between customer retention and future monetization.

Suggested Citation

  • Nicholas Ross, 2018. "Customer retention in freemium applications," Journal of Marketing Analytics, Palgrave Macmillan, vol. 6(4), pages 127-137, December.
    • Handle: RePEc:pal:jmarka:v:6:y:2018:i:4:d:10.1057_s41270-018-0042-x
    DOI: 10.1057/s41270-018-0042-x
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    References listed on IDEAS

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    1. Voigt, Sebastian & Hinz, Oliver, 2016. "Making Digital Freemium Business Models a Success - Predicting Customers' Lifetime Value via Initial Purchase Information," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 84850, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
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    Cited by:

    1. Jean-Baptiste Débordès & Gilles Caporossi & Denis Larocque, 2021. "Is my cross-promotion profitable? Evaluation of game-to-game cannibalization in free-to-play mobile games," Journal of Marketing Analytics, Palgrave Macmillan, vol. 9(3), pages 173-184, September.
    2. Philipp Brüggemann & Nina Lehmann-Zschunke, 2023. "How to reduce termination on freemium platforms—literature review and empirical analysis," Journal of Marketing Analytics, Palgrave Macmillan, vol. 11(4), pages 707-721, December.
    3. Bikram Karmakar & Peng Liu & Gourab Mukherjee & Hai Che & Shantanu Dutta, 2022. "Improved retention analysis in freemium role‐playing games by jointly modelling players’ motivation, progression and churn," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 185(1), pages 102-133, January.
    4. Fraiman, Daniel, 2022. "A self-organized criticality participative pricing mechanism for selling zero-marginal cost products," Chaos, Solitons & Fractals, Elsevier, vol. 158(C).

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