A study on factors affecting the conversion of Spotify’s free users into paid customers in India.

Abstract

This paper intends to delve further into depths of the user behaviour to study the conversion of free users into paid customers on the platform. A study conducted at Copenhagen Business School (Charlotte Lejre) highlighted the key differences in traits between Spotify’s premium and free users in the USA. The research highlighted differential preferences between the user segments which lead to differences in user conversion on the platform. Spotify is also taking steps to grow its paid subscriber base in India (SN, 2020) and this project can serve as a medium to give an insight into potential ways to increase monetisation from India’s customer base. Freemium models across industry have achieved varying amounts of conversion from its free users to paid users. This problem has surfaced increasingly as companies have expanded beyond developed markets to emerging markets. While these models have seen widescale adoption across emerging markets, the conversion of customers (especially in the entertainment industry) has remained very meagre. Existing research has suggested that this is driven by varying attitudes and behavioural intentions of free and premium customers of these services. The varying importance of feature offerings and optimal price points is one of the major determinants in a user’s decision to purchase a premium offering of a freemium service. There are various aspects of convenience, discoverability, social connectivity, price to value and ad-free music that a premium user seeks from a premium offering of an audio streaming platform. Our study highlights that convenience and ad-free music are the most preferred attributes by Indian customers in the audio streaming industry. Our findings highlight that multi-tasking/ switching between apps, offline downloads, preferred playlists (based on previous listening patterns), uses across devices, genre-based/ themed suggestions, the removal of ads, and sharing music with friends/ family are the most desired functionalities demanded by the survey respondents. To cater to these set of customers with essential functionality requirements, Spotify can look to launch a premium economy subscription priced around INR82-85/ month to appeal to a broader set of customers.