In E Commerce parlance, Networking Effect means that more and more consumers of products or services are joining a platform while at the same time, providers of those products or services are also joining it, in anticipation of sales.
At the start of an E Commerce project, it is basically a supply side excess. You put a product or you sign up several suppliers ( in case of a market place) and wait for their customers to sign up. In case the customers don’t sign up, the platform may quickly lose relevance.
Thus, you would need to simultaneously also would need to attract the customer base . The larger the customer base, more products you can sell or more suppliers you can sign up.
Positive feedback loop for your business
This is called as Network effect and it is very important to understand the importance of it for your E Commerce business to succeed
The Network Effect causes a positive feedback loop as can be inferenced from above. The larger your catalogue, the higher will be your customer base and higher customer base means more suppliers are attracted to your business.
Spend money initially, enjoy later
When your E Commerce business is new, you would experience a barren customer landscape. This is because you don’t have advertised your platform and how it benefits those who are signing up. And that may be a significant spending. But once you have a sizeable user base, you can utilize their data to help your suppliers target them with specific attributes such as gender, location or interests.
In case you cannot grow organically (there is probably competition), you will need to use all available methods including running paid ads to attract as many sign-ups as possible.
The funnel that is created out of those orders, can further be incentivised by using data analysis for higher customer satisfaction. You may also incentivise users by providing referral mechanisms, initial discounts or free shipping offers. The idea is to attract a growing customer base and then when once done, increase engagement.
Utilize the growing network to better your platform
Even if you are knowledgeable about your business, E Commerce can still spring a surprise upon you. You could be asked to provide your products in a different variant for e.g. in a different size or a different colour or shape. If offline world, you would rarely get an opportunity to collect so much requirement unless your network is huge. But in online world, your users’ behaviour can be studied in detail. The data you collect may not only improve your sales funnel but also help you give new product ideas or open the markets which were probably hidden from you.
You can also improve your innovation based on the search queries on your platform and guide your suppliers towards creating new demand-based products.
Getting more engaged user base
Your users would be happier if they have multiple choices to sell their products or buy from your suppliers. They could even compare terms and prices in order to get a good deal for themselves.
And you benefit from all these activities as well because the data analysis allows you to understand deep motives of your user base. You can further define strategies and personalized recommendations based on that data analysis.
Thus, you would get highly engaged customer base which responds to your offers and promotions, and you would get to see more orders and referrals.
Network effect is an important part of your E Commerce business journey and you need to keep in mind that it takes time and money to reach an optimal level beyond which network grows itself. Be patient and win.
Photo by Pixabay
Leave a Reply