How need for closure and deal proneness shape consumers’ freemium versus premium price choices

Internet-based firms extensively use freemium pricing strategies to thrive in the hyper-competitive e-marketplace (e.g., Spotify, Tinder). Yet many firms using this pricing strategy operate at a loss. Few studies have theorized whether consumers’ decision to pay for the premium subscription is contingent on their individual traits. In response, this study posits that need for closure and deal proneness explain consumers’ decisions to choose free versus premium pricing options. We test our predictions using one survey and one experiment. Study 1 shows that need for closure prompts consumers to pay for the premium subscription. Moreover, deal proneness negatively moderates this relationship. Study 2 finds that uncertainty reduction mediates the effect of need for closure on the decision to pay for a premium subscription. These findings have important implications for managers aiming to increase conversion rates from free to premium subscriptions.