Benefits of free trials

My friend had a terrible business meeting recently. Besides playing hard to negotiate, the software licensor with whom he was talking business refused to provide a free trial. My friend eventually called off the deal. But the question is: What is the significance of a free trial?

Most people are typically risk averse. That is, if we are offered a risky choice with higher payoffs and riskless choice with lower payoffs, we would typically choose the latter. Of course, not all of us are risk averse. Further, even those who are risk averse do willingly take risk sometimes!

Risk seeking or risk averse?

Now, suppose you want to buy an LED TV. Your neighbourhood electronic store gives you two choices: a TV with one-year warranty costs Rs 80,000 while the one without the warranty costs Rs 73,500. Which would you buy?

If you buy the lower priced TV, it indicates that you are risk seeking. Buying the higher priced TV indicates that you are risk averse. Why? As both TVs have the same features, the price difference reflects the warranty cost. And you prefer the warranty to reduce the risk of having a broken-down high-value TV sitting idle in your living room. Sometimes, risk aversion could prompt us to even buy an expensive extended warranty. If consumers are typically risk averse, how can businesses hope to sell high value products? One way is to reduce consumers' risk by offering guarantees (or warranties) and money-back returns.

Suppose the store throws in a 30-day returns policy along with the one-year warranty. Chances are that the money-back returns will attract consumers who are otherwise apprehensive of buying the product. Why? You can return the product and get your money back if you are unsatisfied with its performance. You, therefore, get a riskless opportunity to experience the product.

Free trial is similar to store's returns policy. Moreover, free trials in the case of software costs little to the manufacturer and can improve business revenue. The software licensor, perhaps, underplayed its importance.

(The author is the founder of Navera Consulting. He can be reached at >

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