To Get Users to Pay, Give Them the Option Not ToBen.Mattison
Research
Brown
A study co-authored by Yale SOM’s Tong Wang and K. Sudhir explored an unconventional pricing strategy for episodic content, like TV series: Let users pay to unlock the next installment immediately or wait to get it for free. Counterintuitively, they found, this approach can boost revenue among certain users.
Written by Roberta Kwok
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Most consumers are used to the Netflix model of paying for episodic content: Fork over a fixed monthly fee and watch as much as you want.
In a new study, Yale SOM researchers investigated a different pricing strategy for content that’s consumed as a series of episodes, which is currently employed by an online platform for novels. Instead of paying for a monthly subscription, users on the platform can read the early chapters of each book for free. But then, says Tong Wang, an assistant professor of marketing at Yale SOM, “you get hooked and you want to continue.”
It gives them more opportunities to get into the story, to get hooked, and to cross that threshold of willingness to pay.
Once the reader finishes those free chapters, they are given a choice: Pay a small fee to read the next chapter immediately—the equivalent of paying to keep bingeing Bridgerton—or wait to read it for free.
The team found that this pricing strategy had some unexpected benefits. For certain users, offering a “wait for free” option counterintuitively increased the total amount they ended up spending on content. The reason was that they might not feel invested enough in the story to keep reading after the first few chapters, but getting more free episodes drew them further into the narrative, and they eventually paid for later chapters.
“‘Wait for free’ is a smart mechanism,” says Wang, who collaborated with K. Sudhir, a professor of marketing, and Peter S. Lee, a Yale SOM PhD graduate now at the University of Texas at Dallas. “Maybe they’re still thinking, ‘Should I invest? Should I pay?’ It gives them more opportunities to get into the story, to get hooked, and to cross that threshold of willingness to pay.”
The result runs counter to the conventional wisdom that giving away content for free will cannibalize sales to paying customers. Once people decide that the material is worth paying for, she says, “they start investing.”
The researchers based their study on 15 months of data from an online fiction platform with more than 10,000 novels and more than 1 million users. The delay for the “wait for free” option varied from 1 to 72 hours depending on the book. In the data set, the team could see how many chapters of each novel the user had read, whether they waited or paid for later chapters, and whether they finished or gave up on the book.
Wang and her colleagues found that customers who read a lot of content generally fell into two categories. The first group was more likely to choose the “wait for free” option and didn’t purchase many chapters; you could think of them as the patient users. The second, more impatient group, which accounted for nearly two-thirds of all purchases on the platform, was much more likely to choose the “pay to read immediately” option.
The team also used AI to analyze each chapter’s narrative features. For instance, the software scored the strength of the cliffhanger at the end of the chapter, how quickly the story moved, and the breadth of topics the chapter covered.
The two customer groups responded differently to these story elements. A stronger cliffhanger or faster pacing increased the chances that the impatient users would pay rather than wait. But for the patient users, the narrative features didn’t make much of a difference to their behavior. “They don’t mind waiting even if the narrative speed is high,” Wang says.
The team then created a mathematical model, based on the data, to predict how users would have responded if the platform had simply put up a standard paywall for all chapters after the initial free chapters. Then they simulated how people’s behavior would change after the platform added the “wait for free” option for later chapters.
They found that when the “wait for free” option became available, people in the more patient group spent about half as much money on the platform. But among the more impatient users, adding this option increased the total amount they spent by 36%.
When these users are confronted with a paywall and don’t feel interested enough in the book to pay, “some of them just leave the story,” Wang says. But if they can use the “wait for free” option on a few more chapters, they’ll give the novel a chance to win them over and eventually start paying for remaining chapters. “Readers end up staying longer in the book,” Sudhir says.
The results suggest that platforms might want to tailor their strategy depending on the type of user. For instance, if a company has identified a subset of high-value customers who account for most of their revenue, the platform could offer those people a $20 credit to use on certain episodes to help them advance further and reach a point where they’re willing to pay.
The researchers also found that for the “patient” users, increasing the wait time could filter out readers who aren’t that interested in the content anyway. If the wait time is long, those people will quit and may find another book on the platform more to their liking. Then the readers who remain are truly invested in the story and more likely to pay for content later.
Finally, the team tested what might happen if the platform instead based its pricing on the chapter’s narrative content. First, the researchers used the model to rank each chapter in each book from least to most engaging. Then they simulated a scenario in which more engaging chapters required payment, while weaker chapters had a “wait for free” option. The team also tried different cut-off levels—for instance, allowing “wait for free” for the 10% weakest chapters versus 20%, 30%, and so on.
They found that to increase revenue, the revenue-maximizing cutoff was 30%, leaving 70% of episodes as paid, because patient users needed enough free chapters to get invested in the story, but not so many that they never felt inclined to pay at all.
The study suggests that “wait for free” could be an intriguing avenue to explore for content platforms. But, Wang notes, for the model to work, the free content needs to be just as good as the paid content, in order to convince users that it’s worth investing in. Maybe they don’t want to pay at first, but then “they get interested,” she says. “These people can be converted.”
This strategy also allows customers to self-select pricing in a more nuanced way. Typically, content platforms offer people a choice of price tiers—for example, a cheaper membership with ads and fewer features versus a more expensive, ad-free “premium” membership with more features. Customers decide between them once—when they’re signing up—and only switch tiers when their needs or financial circumstances change.
By contrast, with the “wait for free” option, users can make frequent decisions about the best pricing model, based not only on their ability to pay but also on each chapter’s content and what they happen to be doing at the time. For instance, if a reader finishes a chapter right before they have to rush to a meeting or pick up their kids from school, they might choose “wait for free” since they can’t keep reading at that moment anyway. “But if I have 20 minutes more free time right now, I’d rather pay and just finish one more chapter,” Sudhir says. “This is an incredibly powerful mechanism of segmenting customers.”
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