Cognitive Biases in Freemium Offerings: Understanding Free Users' Intentions to Become Paying Customers in Music Streaming Services

Sammanfattning: Along with recent technological developments, the music industry has experienced a digital disruption, and subscription-based music streaming services has become a leading model for music providers. Several music streaming services have applied the freemium model to their service offerings, meaning that they offer an ad-funded free version of their services with limited features along with the option to pay for a premium service with richer functionality. In spite of the benefits of this model, many companies who provide freemium services have a disproportionately low proportion of paying customers, which in turn inhibits their profitability. Research has shown that consumers experience cognitive biases that place an irrationally high value on free services, suggesting that users of free services are reluctant towards switching to a paid service, even when the paid service offers more features. The aim of this thesis is to examine whether this holds true in a freemium context. This is done by testing two previously demonstrated cognitive biases - the zero price effect and free mentality - in a between-subject experimental setting by asking 198 participants collected through a convenience sampling method to evaluate a hypothetical freemium music streaming service. The zero price effect is the notion that people place an irrationally high value on free services and items, while free mentality is the notion that people expect online content to be free, which has been shown to negatively impact their willingness to pay. The results indicate that the zero price effect holds true in the experiment. Participants associated an irrationally high value with the free version of the music streaming service, which in turn decreased their willingness to become premium subscribers. However, the results did not indicate that free mentality has a moderating effect on this relationship.