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Offering Free Trials with Consumer Online Reviews

Published: 18 December 2018 Publication History

Abstract

A company sells a new product online through two stages. In the first stage, free trials are offered to consumers; in the second stage, products are sold at the regular selling price. Consumers are uncertain about the value of the product, while online reviews can help them reveal the product value. Consumers who have received the free trials are required to provide online reviews of the products which can help future consumers better understand the uncertain product value. The greater the number of consumer reviews, the more the future consumers' purchasing decisions rely on consumer reviews. The company offers free trials to induce consumer online reviews and to increase the expected future sales. However, offering too many free trials can exert significant cost for the company. We characterize the optimal number of free trials the company should offer in the first stage, as well as the optimal selling price in the second stage. We find that the company offers free trials when the product cost is below a threshold, and does not offer free trials otherwise. If the uncertainty of product value becomes larger, the firm should provide more free trials and its profit becomes lower.

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    ICSEB '18: Proceedings of the 2018 2nd International Conference on Software and e-Business
    December 2018
    79 pages
    ISBN:9781450361279
    DOI:10.1145/3301761
    Permission to make digital or hard copies of all or part of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for components of this work owned by others than ACM must be honored. Abstracting with credit is permitted. To copy otherwise, or republish, to post on servers or to redistribute to lists, requires prior specific permission and/or a fee. Request permissions from [email protected]

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    Published: 18 December 2018

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    Author Tags

    1. Consumer online reviews
    2. Free trials
    3. Uncertainty of product value

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