Marketing

Creating the network effect

Chitra Narayanan | Updated on January 19, 2018

Professor Rajkumar Venkatesan, Professor of Business Administration, Darden School of Business, University of Virginia

Press the right buttons: Apps should address a need, and should be designed based on consumer behaviour, says Rajkumar Venkatesan

Apps should be designed such that customers use them increasingly and refer them to other users too



Data and analytics are the new weapons of the marketer today. Professor Rajkumar Venkatesan, Professor of Business Administration, Darden School of Business, University of Virginia, focuses his research on how analytics helps in earning return on investment, and adds to customer lifetime value. His research on mobile shopper marketing talks about the key challenges of retailers in capitalising on the mobile shopping trend. Excerpts from an interview with cat.alyst:

With the advent of Internet of Things (IoT), and connected devices, a lot of data will fall into the marketer’s lap. How can this be used?

IoT is both an opportunity and a challenge. Till now marketers knew what people were buying and why they were buying that product, but they did not know how people used that product. Now consumption data can come their way through IoT. This can change the way products are designed and priced and change the game. For the next model of the product, companies can start developing stuff that is more customised to how consumers are using it. But IoT is also a challenge because the pricing of connected devices is higher — how do you get people to pay a higher price to use these?

Do e-commerce companies hold a greater advantage as they get more analytics on user behaviour compared to offline stores?

Offline retail companies can do a lot by creating a different channel to engage consumers with and through integration between channels and moving to omnichannel strategy. Moving to smaller formats of retail stores, keeping the experience at the centre of the town and keeping the inventory to the suburb — like the Apple store model — that may be the way forward for retailers.

I also feel virtual reality is going to be a big boon for retail. Right now its applications are more for gaming. But VR has the potential to create a great experience in retail.

Mobile payments connected to other services can also create value for offline retailers. For instance, through loyalty programmes. Starbucks, for instance, now has a payment platform on its loyalty card — you can use it as an e-wallet.

What are your tips for app developers?

The first thing is that the app should address a problem in the market. That’s the beginning. Then focus on the product design. How are you aligned to the current habit of the consumer? Only if the product is aligned will a consumer use it once, twice, thrice. You can change the habit only later. Then another challenge is to create a network effect. The more the number of consumers get on to the app, there is a network effect and the app becomes more valuable. Apps should be developed in such a way that they make consumers use them more and more and refer others to them. Take Uber, which, through incentivising referrals, creates a network effort. An interesting example is also Cardagin, a creator of a mobile loyalty and payment platform for restaurants. The more you use it, the more coupons you get and can redeem.

But how do you enforce this consistency of usage among consumers? Also, the network effect dies within two months. So there should be a strategic focus on how you constantly add value and keep reminding the consumer to use the app. You have to give them incentive, but how much incentive do you give without burning is a question of balance.

Published on January 21, 2016

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