Analysis of Irrational Consumer Behaviour in Relation to the Freemium Model

Dhruv Roongta, Shravan Haribalaraman

Abstract: The increase in popularity of freemium services has evoked thought as to how consumers make economic decisions with regard to this business model, which in this case we hypothesize are irrational. The conversion rates of these freemium companies are influenced by several factors, the most influential of these being the utils of the premium service, the daily usage of the free service, and the difference in value between the paid and free products. In this paper we analyse this consumer irrationality and attempt to understand how, and to what extent, certain cognitive biases and heuristics affect consumer decisions in relation to freemium products. We do this by identifying trends and similarities across freemium products, contrasting consumer behaviour in freemium and paid pricing models through case studies, and then creating a survey to corroborate our hypotheses.

Keywords: Behavioural Economics, Freemium, Subscription Model, Bounded Rationality Theory, Irrational Consumer Behaviour, Consumer Bias, Case Studies, Survey