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Invite-Only Marketing Strategies

The article linked below discusses the risks and rewards of an invite-only marketing strategy. In lecture we have explored how networks effects can make it difficult for new products to become popular, particularly for services such as social networks where the value of the service depends on the size of its user base. In order to combat these negative network effects, invite-only marketing attempts to increase demand for a new product by giving early adopters a feeling of exclusivity.

Imagine a network of users using some preexisting product A. Normally, it would be very difficult to convince an individual user to switch to a new product B, because the user’s friends and family are all using A, making A much more valuable to the user. However, by giving the user a special invitation to use product B, they may see value in B simply for its air of exclusivity.

Once adoption of B is seeded with several first adopters, network effects start working toward the continued success of B. After all, first adopters will be motivated to invite their friends to use B (in order to increase the value they themselves get from B), and subsequent potential customers will be motivated not only by exclusivity, but also by the growing fraction of their peers that are using B. By the time the air of exclusivity wears off, the hope is that enough people will be using B that it will now be valuable in its own right–enough to compete directly with A.

The article, however, points out that an invite-only marketing strategy can also backfire. As we know from lecture, if a network-dependent product does not reach a certain adoption threshold, adoption will slide back down to zero as it customers realize that the user base is not sufficient to make the product valuable to them. This could happen, the article points out, if the limits on product access are so tight that customer interest dwindles before product invitations can reach a large enough audience.

http://www.zdnet.com/article/invite-only-strategy-stirs-demand-but-could-backfire/

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