Marketing w/ Network Effects: Pocket Points
Pocket Points is an app made to encourage students to stay off their phone during class and while studying on campus. While the app is open and the user’s phone is locked, the user earns points. Then, these points will can be redeemed for discounts and gifts. Pocket Points takes a percentage of whatever the users buy. According to this article, “Pocket Points’ debuted at Chico State in the fall of 2014 and, within a few weeks, was in use by almost a third of Chico State’s 17,000 students.” A very similar phenomenon happened at Cornell in the beginning of this semester.
Let’s look at how Pocket Points had a big audience growth in such a quick time, in terms of network effects. As we know, z = 0 is an equilibrium audience size. If no one expected to use Pocket Points, no one would. Pocket Points won’t grow in audience size unless it can get past it’s tipping point (z’). According to the textbook, “starting small and hoping to grow slowly is unlikely to succeed …you somehow need to convince a large initial group to adopt your product” (Easly and Kleinberg, 526). Pocket Points managed to accomplish this by offering incredible gifts and deals. You could get free taco bowls, coffee, or bagels at incredibly accessible locations on campus (almost every café had some sort of free gift). By offering so many free things, Pocket Points set a low z’ for itself.
An information cascade began among Cornell students. I remember hearing from one person to download Pocket Points and then by next week, everyone had it and everyone was talking about it. There were also referral codes that gave you incentive to invite your friends to join. (There was also an exploitable glitch, but that’s another story). The audience size quickly grew from a few people to basically what felt like the whole undergraduate population. It was clear Pocket Points made it past its low z’ and hit z’’.
However, the amazing deals eventually went away. All the free deals were only offered to get a huge initial audience size. Pocket Points made it harder to earn points and made a waiting period until you could redeem your next free item. It was also rumored from the Daily Sun that Cornell lost money or some of the cafe’s lost money from Pocket Points’ deals.
In terms of marketing, Pocket Points did exactly what the textbook suggested as a possibility, “This price below the cost of producing the good will result in early losses, but if the product catches on — if it gets over the tipping point — then your firm can raise the price and perhaps make enough profit to overcome the initial losses” (Easly and Kleinberg, 526). By removing a lot of deals, Pocket Points raised its price, probably to overcome losses as the textbook suggested. So z’ rose and z’’ dropped. A lot of Cornell students stopped using Pocket Points, indicating the new z’’ was lower than the original z’’. Although their eventual equilibrium audience size shrank, Pocket Points did a good job of making themselves known around campus.