Network effects in the “Also Recommended’ section when shopping online
Link:
blogs.lse.ac.uk/businessreview/2016/11/16/how-people-react-to-the-also-recommended-section-of-online-stores/
Today, online retailers like to make use of network effects as a marketing strategy. On most e-commerce sites, a product is featured on its own designated webpage. On each of these pages, retailers can implement a system that recommends similar or relevant products to the consumers. This creates a product network in which products are nodes connected by hyperlinks, which are the ties. Examples of recommendation networks are co-view networks (“Customers who viewed this item also viewed”) and co-purchase networks (“Customers who bought this item also bought”). The reasoning behind this marketing strategy is seen here. If other customers who viewed that item also viewed other certain items, it is probable that a customer viewing that item may like those other items. This could indicate similar interests, and this logic also applies to co-purchase networks. Considering that some customers who viewed that item also purchased it, a consumer viewing that item might want to buy it too.
A study was conducted on data from Tmall.com to analyze the network effects. The findings found that increased demand effects are more significant in the co-purchase network than they are in the co-view network. This is probably because some consumers who view an item online but didn’t buy it could’ve clicked on it by accident, was only curious to check out the item but didn’t want to buy it, or was initially interested and then lost interest after viewing the item. Meanwhile, if a consumer buys an item, they most likely have interest in it or they need it for a specific purpose. The study also analyzed network diversity (the diversity of product categories connected in the network) and stability (lack of variation in the products connected in the network). There was increase in a product’s demand when there was increased diversity in the incoming co-purchase network (when the product is recommended to customers who bought other items). Meanwhile there was decrease in a product’s demand when there was increased diversity in the outcoming co-purchase network (when customers who view or buy the product see recommendations for other items). It was also found that increase in the stability of the outgoing co-purchase network leads to decrease in demand.
This article is relevant to our class because we learned about network effects (the effect that a user of an item or service has on the value of that product to other people). When many people are using a certain product, a potential consumer may think those people use that product because it is a good product. This results in the potential consumer using that product too. In the case of this article, this can be seen in that consumers see the recommended items and think that they may like those items since people similar to them like those items too. Furthermore, when many people use an item, a potential consumer may think that they’ll benefit from that product because more people using it makes the product more useful.