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Spotify in Finnish and Vietnamese Markets

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Spotify in Finnish and Vietnamese Markets UNIVERSITY OF VAASA SCHOOL OF MANAGEMENT Thi Anh Thu Khong CUSTOMER PERCEIVED VALUE IN FREEMIUM BUSINESS MODEL Case study: Spotify in Finnish and Vietnamese markets Master`s Thesis in Economics and Business Administration Master’s Programme in Strategic Business Development VAASA 2019 1 TABLE OF CONTENTS page TABLE OF FIGURES AND TABLES 5 ABSTRACT: 7 1. INTRODUCTION 9 1.1. Freemium as a research phenomenon 9 1.2. Research gap 10 1.3. Research purposes and research question 12 1.4. Research approach and structure 13 2. LITERATURE REVIEW 16 2.1. The state of music industry 16 2.2. Freemium business model 19 2.2.1. Definition of key concepts 19 2.2.2. Freemium business model definition 22 2.2.3. Benefits and drawbacks of freemium business model 25 2.2.2. Summary of freemium business model 26 2.3. Customer perceived value 27 2.3.1. Uni-dimensional approach to customer perceived value 27 2.3.2. Multi-dimensional approach to customer perceived value 30 2.3.3. The nature of customer perceived value 33 2.2.2. Summary of customer perceived value concept 35 2.4. Synthesizing theoretical framework 36 3. RESEARCH METHODOLOGY 41 3.1. Research approach 41 3.2. Research method 42 3.3. The case study 43 3.4. Sampling 45 3.5. Conducting interviews 50 3.3. Data analysis 52 4. CUSTOMER PERCEIVED VALUE IN SPOTIFY 53 4.1. Finnish customer perceived value 53 4.1.1. Key findings from Finnish market 53 4.1.2. Key value dimensions 55 4.1.2.1. Perceived cost 55 4.1.2.2. Functional value 60 4.1.2.3. Emotional value 65 4.1.2.4. Social value 67 4.2. Vietnamese customer perceived value 70 4.2.1. Key findings from Vietnamese market 70 4.2.2. Key value dimensions 72 4.2.2.1. Perceived cost 72 4.2.2.2. Functional value 76 4.2.2.3. Emotional value 81 4.2.2.4. Social value 82 4.2.2.5. Aethestic value 84 4.3. Comparsions of customer perceived value of Spotify in two markets 86 4.3.1. Premium 86 4.3.2. Free version 88 5. CONCLUSION 91 5.1. Answer to the research question 91 5.2. Theoretical contributions 94 5.3. Manegerical contributions 95 5.4. Limitation and future research directions 97 LIST OF REFERENCES 99 TABLE OF FIGURES AND TABLES Figure 1. Global recorded music industry revenues 1999 – 2017 17 Figure 2. Global streaming music subscription market H1- 2018 18 Figure 3. Research streams on perceived value 35 Table 1. Examples of customer value definitions 29 Table 2. Mainstreams of multi-dimensional approach to customer perceived value 33 Table 3. Synthesis of theoretical framework 37 Table 4. Spotify Premium and Freemium versions 44 Table 5. Interviewees’ list 51 Table 6. Finnish customer perceived value in Spotify 52 Table 7. Vietnamese customer perceived value on Spotify 70 Table 8. Comparison of customer perceived value of Premium Spotify in Finnish and Vietnamese market 88 Table 9. Comparison of customer perceived value of free version Spotify in Finnish and Vietnamese market 90 7 ____________________________________________________________________ UNIVERSITY OF VAASA School of Management Author: Thi Anh Thu Khong Topic of the thesis: Customer perceived value in freemium business model – Case study: Spotify in Finnish and Vietnamese market Degree: Master of Science in Economics and Business Administration Master’s Programme: Strategic Business Development Supervisor: Karita Luokkanen-Rabetino Year of entering the University: 14 Year of completing the thesis: 2019 Number of pages: 107 ____________________________________________________________________ ABSTRACT: Freemium business model has become more popular in digital economy in practice and therefore, become a phenomenon that worth to research. There have been so far only few researches about customer perceived value in freemium business model. This research deepened the understanding of customer value perception about Premium and free versions based on value theory. In addition, put into the context of emerging market and mature market, the study aimed to find the differences of customer perceived value in different market cycle. The study confirmed the difference of perceived value of the same product in different markets. In the mature market (Finland), the Premium version of freemium service Spotify has become basic and standard, therefore, the perceived cost was only money and there was no aesthetic value found. People chose Premium mainly because of its functionally convenience rather than to imply some positive meaning about themselves through the purchasing decision. On the other hand, in the emerging market (Vietnam), Premium version was perceived as the more sophisticated luxury version. The perceived cost was not only money but also the willingness to pay for the better version of the service. Aesthetic value was found, as using Premium was perceived as transferring positive messages related to their financial status, lifestyle and music taste. ______________________________________________________________________ KEY WORDS: freemium business model, customer perceived value, Spotify, Finland, Vietnam 8 9 1. INTRODUCTION 1.1. Freemium as a research phenomenon The drawback of digitalization is that duplicating the content of some products becomes easier. Therefore, piracy and illegal downloading of products and services such as music, movies, books, games and mobile apps has been increasing significantly. Against piracy is a long-term fight requiring the government support by law and the awareness of users. However, that challenge also opens new ways of doing business: let customers use products and services for free and encourage them to upgrade to premium for some special features. Giving away for free is not a new concept in marketing (free sampling) However, using “free” as a part of an endeavor’s activity has become a new trend, making Freemium business model as a worth to research model. Freemium business model has become more and more popular in the digital economy in practice. Many well-known brands are using this model: Skype, Dropbox, Spotify, Free2play, to name just a few. Although the freemium concept already existed in the 1980s, until the beginning of 21st century, it has become a research phenomenon. The term was defined by Wilson (2006). Anderson with his book “Free: the future of radical price” (2009) has contributed importantly to the understanding of freemium business model. He defined this revenue model as having a free version that is available for everyone and sell the Premium version for those who are interested. Unlike the sampling strategy which free version is for the beginning promoting purpose, in the Freemium business model, both Premium and free version coexist. The main idea of freemium is that premium users cover the cost for free users. According to Anderson (2009), there is usually just 5% of users will upgrade to Premium. These 5% will cover the cost of the service. In addition, companies also use advertisement to sponsor the free version (Anderson 2009, Dörr, Benlian & Hess, 2010). Since 2006, freemium business model has significantly grown and become an interesting research phenomenon. There are two main focusing perspectives on freemium: freemium as 10 a profitable revenue model and customer behavior on freemium model. With the first perspective, authors aim to determine the best strategy for a company in various scenarios. Teece (2010) compared internets services’ traditional and new models. The result concluded that freemium is an encouraging revenue model for this industry. Semenzin et al. (2012) studied with 17 companies in the online software market to define which features companies should design as available for the free version and which should not. Liu et al. (2012) examined 1597 ranked mobile apps to conclude that using freemium business model could boost the sale volume and revenue of a mobile app. From economics aspect, Seufert (2014) conducted a thorough survey in software industry and explained how freemium services and products could create revenue and attract users. The second perspective of studying freemium business model is to identify why customers are willing to pay for a service, even its basic version is free. Dörr et al. (2010) studied which features impact on users’ willingness to pay for music service by surveying 132 users. The result showed that sound quality and the contract period would affect. Östreicher-Singer and Zalmanson (2013) studied how willingness to pay and community activity would connect. By analyzing data of an online radio station, they found that very active network users were more willing to pay for Premium version. Wagner et al. (2014) measured whether the limitation of free services would affect the evaluation of free and premium versions. The study suggested that companies should aim to balance the functions of free and premium services to increase the converting ratio and increase profitability. 1.2. Research gap Although studying freemium from customer perspective is one of two main focuses, researches about this topic are still rare. Especially, to the extent of the author, there have been only a few researches about the freemium model from the lenses of customer perceived value. Therefore, researching about customer perceived value in freemium business model is in need. Niemand, Tischer, Fritzsche and Kraus (2016) researched why consumers perceived more value with free than with premium offers. The research included one initial study with 11 158 respondents and one main study including 1991 online surveys in German. They concluded that free offers inversely reinforced the consumer’s value perception, providing more value, not less. The research clearly improved the understanding about customer perceived value with free and premium services. It pointed out that to gain success, companies using freemium business model would need to clarify the difference of free and premium versions and increase the benefit of the premium features. In the research, the authors also concluded that age and education did not affect customer value perception of freemium model while gender did make the difference (female perceived the free version more value than male did).
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