How to Build Your Business Using Network Effects
A Forbes article I came across discusses how you can use network effects to make your business more successful, as well as build your customer base.
In class, we studied Network Effects, which is that the value a user receives from a product is the number of users who use that product.
Therefore, businesses want to attract a set of initial customers, so that they will be able to attract more customers later using the network effect.
However, the Forbes article by Nirmala Reddy suggests a strategy that goes further: they say a business should have a model that creates a unique and differentiated value to users. Creating a differentiated market will ensure you attract people in different segments of the market.
This can go hand in hand with what w learnt in class, that the product will attract sets of different customers, who in turn will attract more customers to the product.
The article also goes on to say that a business should lower their costs to maintain their customer base. Furthermore, Reddy talks about how to beat the competition – the business should offer a product that is unique and at a low cost. This makes it harder for the customers to find alternatives.
This reminded me of equilibrium z values that we discussed in class. Lowering the cost would make sure that the customer’s values remain higher than the tipping point, and will ensure that they remain willing to the buy the product.
This article presents the concept of network effects from a business’s point of view.
Source: https://www.forbes.com/sites/forbescoachescouncil/2018/01/02/how-to-harness-the-power-of-network-effects/?sh=3a25b5a262e8