Nudges as Conversion Funnel Enhancers in Digital Business Models

By leveraging the technological advancements in information, communication, and connectivity technologies, specifically the internet, firms continue to innovate and create value through new digital business models which are disrupting entire industries. More recent success stories include Spotify, a music streaming service which has transformed the way music is consumed and has disrupted the entire music retail industry as well as Dropbox, which has been attributed a similar disruptive role in regards to consumer file storage. However, competition and distraction in the online space are fierce and consumers often expect products and services on the internet to be free, urging firms to rethink the design of their conversion funnel to win new customers and thus capture the value they create. The conversion funnel describes the transformation users undergo when sequentially proceeding through four stages to ultimately complete an online transaction with the firm: from being a non-visitor to becoming a visitor (also called acquisition), to becoming a registered user (also called activation) and lastly a converted customer (also called customer conversion). While Information Systems (IS) research on the conversion funnel of digital business models has dealt quite extensively with the antecedents of consumer decision making in all parts of the funnel, big questions remain as to how firms may actively shape desired outcomes in regards to acquisitions and customer conversions. Research on acquisitions has emphasized that traditional advertising is becoming less effective due to media saturation and consumers wanting to rely on more credible sources when seeking information on new products and services. This has lead mechanisms such as referrals, which relate to passing along messages received by the marketer to one’s peers, to become a critical component of marketing strategy. However, extant contributions have focused on the antecedents of consumer referral decisions, leaving a big gap as to how firms may actually enhance referrals and thus improve acquisition outcomes. Similarly, research on customer conversions has mainly focused on identifying the antecedents of consumer decision making at the neglect of shedding light on how one may actually shape conversion outcomes. On the other hand, IS research on activations is quite mature and has paid attention to both the antecedents of consumer decision making as well as how firms may drive better activation outcomes. Digital nudging, which refers to the practice of using visual user interface elements to influence consumer behavior in digital choice environments, has shown promising results in driving activation outcomes in this regard. For example, the usage of pull vs. push mechanisms in requesting information to consumers may influence their privacy concerns and thus activation outcomes. However, digital nudges have so far been widely ignored in the context of acquisition and customer conversions. Against this backdrop, three studies were conducted. The first study, by drawing on a randomized field experiment in the context of an online fashion service named StyleCrowd, investigates the effect of scarcity and personalization nudges in enhancing consumer referrals and thus improving acquisition outcomes. Building on this, the second study is focused on examining the potential of scarcity and social proof nudges as referral enhancers in the context of a randomized online experiment with the German startup Blinkist. Lastly, the third study examines how free trial order nudges may be used to enhance customer conversions within freemium business models by drawing on a contest-based online experiment. Overall, this thesis expands our understanding of how digital nudges may be used to enhance acquisition and conversion outcomes within the conversion funnel of digital business models. On the acquisition end, we provide evidence of how scarcity, social proof as well as personalization nudges may increase consumers’ propensity to engage in referrals and explicate the drivers that mediate these effects. Furthermore, we also shed light on the positive interaction effects between scarcity and social proof as well as the negative interaction effects between scarcity and personalization, and provide explanations for these phenomena. On the customer conversion end, we demonstrate how free trial order nudges may be used to enhance premium conversion within freemium business models. Besides unveiling the drivers that mediate this positive effect, we also explicate external factors that act as moderators. In sum, the contributions of this thesis are not limited to digital business models and digital nudges, but also extend into IS and marketing research on electronic word of mouth as well as research on cognitive biases. From a practical perspective, firms may leverage our findings for the design of their conversion funnel by carefully employing digital nudges to enhance acquisition and conversion outcomes.