# How to Deploy CRM to Create and Strengthen Network Effects

- Link: https://phiture.com/mobilegrowthstack/how-to-deploy-crm-network-effects/
- Published: 2023-04-04T08:14:45+01:00
- Author: Silvana Fezga

![](https://phiture.com/wp-content/uploads/2023/03/How-to-deploy-CRM-to-create-and-
strengthen-network-effects.png)

The terms Viral and Network Effects are common parlance in mobile growth marketing
and are often used interchangeably. While there are similarities between the two
effects, there are also stark differences that mobile growth marketers need to understand,
especially as both phenomena are highly desirable to apps of all categories and 
could be a part of your growth strategy. 

In this article, we’ll delve into what is meant exactly by Viral and Network Effects,
focussing in particular on how CRM can create and contribute to network effects 
through the five stages of Andrew Chen’s Cold Start Theory. We’ll also illustrate
this with some common examples of CRM to be found across several categories of apps.

### **What are Viral and Network Effects?**

A Viral Effect in marketing is the process of information about a product or app
being shared rapidly and widely across social networks, from user to user.  

This is often the holy grail for acquisition marketers, as existing users bring 
the app new users, without incurring costs. The recent explosion of AI apps is a
case in point of the Viral Effect. This explosion in growth has been thanks to users
sharing via their social channels the capabilities of particular AI tools. A viral
effect doesn’t only happen for digital products either. The book [Atomic Habits](https://www.amazon.co.uk/gp/product/1847941834/ref=ox_sc_act_image_10?smid=A3P5ROKL5A1OLE&psc=1&tag=huffuk-21&ascsubtag=63adf7d6e4b0ae9de1b5a8bf,-1,-1,d,0,0,hp-fil-am=0,0:0,0,0,0)
by James Clear achieved [virality in 2022](https://www.huffingtonpost.co.uk/entry/best-tiktok-viral-products-2022_uk_63adf7d6e4b0ae9de1b5a8bf)
by virtue of TikTok recommendations.

The Network Effect is where a product or service gains additional value for its 
users with every additional user. For example, a messaging platform becomes more
valuable if the number of users that can communicate with each other is greater.
This is also a more attractive value proposition when acquiring customers, and indeed
a substantial value added for users to then continue using the app.

 Let’s now break this down further with the help of another example. The network
is defined by the users of the product or service and what they have to offer. For
example, in a marketplace, the network consists of the sellers who are offering 
products as well as the buyers that buy them. The marketplace platform is the mediator
that needs to make the right product suggestions to the right users, based on their
habits. **The Network Effect** for our hypothetical marketplace is the process of
the value of the marketplace increasing as more people start to use it, with more
products on offer. If there are not enough products (provided by our selling users
and facilitated by our mediator), the buyers will stop coming back to it, and eventually,
the marketplace will die. 

Instead, to maintain the effect, the supply of products on the platform (typically
supplied by an increasing number of sellers) needs to exceed the number of buyers
so demand can be met. The number of buyers also can’t be too small, otherwise sellers
will struggle to sell their wares and lose interest and motivation in selling on
the platform. 

 

![](https://phiture.com/wp-content/uploads/2023/03/new-network-graphs.png)

Understanding the importance of Network Effects is the first step to success for
every company with network-driven products or services. In order to create a networked
product, you first need to make sure your product connects users either to each 
other, or to a physical product to be bought or rented. If so, does it attract enough
users in order to create and sustain a large and powerful network?

It all sounds so simple, but [as Andrew Chen argues in The Cold Start Problem](https://www.coldstart.com/),“
_It’s harder now than ever to launch a product — the battle for attention is so 
fierce and the biggest winners crowd out the rest. Looking at the app store, for
example, nowadays there are several million apps all competing for user attention._”

Multiplayer gaming apps, for example, find it particularly hard to get off the ground
as they require a really strong network of players to be successful and stand out
from other games in the app stores. So what can we do? 

 

### **Scaling an app through Network Effects**

Andrew Chen in his excellent book _“The Cold Start Problem”_ describes a **five-
stage framework** for creating, scaling, and defending the network effect.

The five stages of this framework are:

 * **The Cold Start Problem **is the initial problem of getting the right users 
   and the right content on the platform at the same time, and building the first“
   atomic network.” This is the initial – and smallest – network that can grow on
   its own.
 * **The Tipping Point: **a single, small network is not enough! Once the first 
   atomic network is established, we need to continue building many more of those.
   The good news is that as the mother network grows, each new smaller network (
   be it city by city, market by market, etc) starts growing/tipping faster and 
   faster, so the overall market is more easily captured, and the product booms.
 * **Escape Velocity: **This is when exponential growth starts happening. We need
   to strengthen the Network Effect to make growth sustainable. This is powered 
   by 3 underlying forces:

 1.  a. Acquisition Effect: low cost and highly efficient UA, powered by viral growth,
     b. Engagement Effect: frequent and deep user engagement as networks grow,
     c. Economic Effect: monetization and conversion rates improve as the network keeps
        growing.

 * **Hitting the Ceiling: **the network is both trying to grow and slowly ripping
   apart. This generally happens when an app has saturated the market or when you
   have a large amount of early churners, or low quality app engagement. When this
   happens the network has hit the ceiling and growth stalls. Hitting the ceiling
   can occur many times over the lifetime of one product, as it can be resolved 
   and reappear over time.
 * **The Moat: **this final stage has more to do with how to use network effects
   to win the competition, and by extend to retain more users to your own network
   as opposed to the competition. Theoretically, all competitors can have their 
   own networks, but the smaller network has to take out niches and build strong
   atomic networks, differentiated by key product features, better economics, and/
   or better engagement.

 

_Source: “The Cold Start Problem” – Andrew Chen_

#### **The role of CRM during the app’s lifecycle**

For each stage of Chen’s framework, we can implement several CRM strategies to achieve
the desired outcomes and move on to the next stage.

Ideally, at the tipping point stage, networked apps would use strategies to keep
already acquired users retained and motivate those users to invite their friends
to join as well. This means having an engagement strategy in place and some referral
communications combined, after all, people tend to use an app more frequently if
people in their social circle use it too. 

As our app takes off through the network effect and into the third stage of Escape
Velocity, we need to have in place a monetization strategy, alongside engagement
and upsell strategies. The aim here is to convert as many users as possible into
paid members (if the app has a premium version), or simply monetize in other ways,
depending on the app and what it offers. 

When we reach the fourth stage of Hitting the Ceiling, and we find growth starting
to slow down and stall, we need to focus on retaining the active users that we have
already and keep them as engaged and happy as possible. Some common retention strategies
that we can use as part of our CRM are:

 * [The onboarding process, personalized communications](https://phiture.com/mobilegrowthstack/what-to-consider-before-mandating-registration/)
 * [Adding gamification to challenge and spark curiosity in our users](https://phiture.com/mobilegrowthstack/gamification-in-unexpected-places/)
 * [Surveys to learn from the users themselves what they would be most interested in](https://phiture.com/mobilegrowthstack/how-to-translate-survey-results-into-actionable-insights/)

The final stage, The Moat, is where we start to have the time and space to consider
our competitors. Networked products compete with other similar products in the same
industry or app category and it’s not unusual that users are using two or more competitor
products at the same time. This could be either to compare pricing or features or
even because they communicate with different networks of people that are using each
product or service. This means that your network is overlapping with another product’s
network and eventually one of you will ‘win’ and retain the user base. Examples 
of apps whose audience overlap would be Snapchat and TikTok. Snapchat was very popular
for a couple of years with younger generations, but then the emergent TikTok achieved
virality, and then retained the newly won users by creating a strong network, eventually
winning the majority of the audience. In [2022 TikTok ranked as the third largest social network with 755 million active users](https://techcrunch.com/2021/12/20/tiktok-to-rank-as-the-third-largest-social-network-2022-forecast-notes/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAJlp3MmkoY2oh1fHyjRLpZ9WETiOXClAmR6CL-0LOdgEoTi4uw4Qn2wwzHcgqBIHhsvKK4WQipkDq7K7hyBE_TchsGF8uAk9EVdYft1VtqsZ2FnOocyEnbb5IdofGivkfIiB4cI4msIAWYlhMotq9nf3kXuJ0DBss97vxcQWlWJ0).

### **Common CRM tactics for success**

There is no boilerplate blueprint for success, though there are some principles 
and tactics you can use. Above all, it’s important to consider the value that your
users want by being part of your product’s network and then focus on delivering 
this alongside a unique user experience. 

A good starting point here is to run some in-app surveys to get insight from your
users directly, including regarding their favorite features. As a second step, you
could either split the users into segments depending on the answers they give and
then target them with different communications to highlight your app’s features 
based on value perception, or, alternatively, have a second screen on that same 
survey guiding the user to where inside the app they can find what they are looking
for. Additionally, if the features that your users are interested in are premium
features you could also drive some uplift to your conversion and acquire new premium
members by showing your paywall. 

At Phiture, we frequently designed similar experiments for our clients. Such surveys
typically inform our later CRM strategies, and you can take a closer look at the
in-app survey we ran for Fishbrain in this [case study](https://phiture.com/success-stories/fishbrain-crm/)
for inspiration.

### 

_Fish Brain’s in-app survey to inform later CRM strategy. _

### **Common Examples of how networked apps use CRM**

The best way to see how CRM helps apps grow and maintain their network effects is
by looking into real-life examples of successful apps and their daily or weekly 
communications with their users.

At Phiture we are always on the lookout for great examples of how CRM can add to
Network Effects. We keep a particularly close eye on the food delivery industry,
the car-sharing industry, and the networking and dating industry. 

In the grocery and food delivery industry, a robust CRM strategy that combines push
notifications with emails is used by apps like Gorillas, Flink, and Uber Eats. Daily
notifications to users try to get them to return to the app and shop as frequently
as possible. These notifications often include promo codes or reduced delivery fees
to reward and incentivize the user to shop in the app instead of taking a trip to
the supermarket. In this industry, the network would be defined as existing between
the users and the available riders, in order for the promise of quick delivery can
be kept.

### 

_Examples of push notifications from grocery delivery services, Gorillas and Flink._

 

### 

_An example from Gorillas of a competition to activate users. _

 

Mobility apps in the car, bike, or scooter sharing sector such as Miles, Share Now,
Bolt, and Tier, tend to send less frequent notifications for their CRM. These are
usually weekly and rely on the available location information to trigger notifications.
The network here would be between the users (demand) and the available means of 
transport around the user’s area (supply). This is another industry where promo 
codes are a big part of the service provider’s effort to retain users and to be 
preferred over their competitors. For these efforts, the usual channels would be
email and push notifications and more rarely in-app messages that remind the users
who open the app of their discounts. 

 

### ![](https://phiture.com/wp-content/uploads/2023/03/image12.jpg)

### 

### 

### ![](https://phiture.com/wp-content/uploads/2023/03/image14.jpg)

_Examples of Bolt and Uber’s push notifications to activate users. _

 

Dating apps on the other hand, like Tinder, Bumble, and Happn, tend to use the CRM
channel mix in a slightly different way, owing to the network being comprised of
the users themselves. In-app messages and push notifications are favored to bring
users back to the app and keep them as engaged as possible. This is often done by
sparking the user’s curiosity about other users in the network or nudging them to
send a message to previous matches.

Dating apps also show that when building a CRM strategy, it is not only about choosing
the right channel, timing, audience, personalization, and triggers, but the combination
of all these variables for your CRM strategy is important. 

 

### 

_Some examples of Happn, Fruitz, Tinder, and Bumble’s CRM. _

In a similar vein,  apps like Meetup, a networking and event planning app, use CRM
to keep users informed about upcoming events which might be of interest to keep 
them engaged. 

Meetup mainly uses push notifications but also has a notification center inside 
the app where users can see all the previously received pushes. Challenges and contests
are also used to drive user engagement and increase use. 

### .   

_Meetup’s notification centre, plus efforts to engage users. _

### **Applying network effects to your CRM**

It should now be clear what Network Effects are and how valuable they can be. Without
a doubt, the most difficult phase a product or app has to go through is the initial
stage of forming networks, but that doesn’t mean to say once a network has enjoyed
a tipping point that you can just relax and let your app grow without intervention.
It’s crucial that you keep up your efforts to retain acquired users and constantly
prove your value to your existing users because your competition will be doing exactly
that! 

We recommend focusing all your CRM efforts on personalization and on nudging users
to return to the app. Make sure you’re gathering insights into what users like and
dislike. These insights should inform your product roadmap, with a focus on upgrading
product features in order to align with your users’ needs and then educating your
users about these insights accordingly. 

 

### **Sources and further reading**

a16z, [The Dynamics of Network Effects](https://a16z.com/2018/12/13/network-Effects-dynamics-in-practice/)

Chen, [The Cold Start Problem](https://www.coldstart.com/)

Future, [All about Network Effects](https://future.a16z.com/all-about-network-Effects/)

Harvard Business School Online,[ What are network effects?](https://online.hbs.edu/blog/post/what-are-network-effects)

mDevelopers, [Technology Adoption Curve – Everything that you need to know](https://mdevelopers.com/blog/technology-adoption-curve-everything-that-you-need-to-know)

Moore,[ Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers](https://en.wikipedia.org/wiki/Crossing_the_Chasm)

NFX,[ Viral Effects Are Not Network Effects](https://www.nfx.com/post/viral-effects-vs-network-effects)

TechCrunch,[ Gorillas, the on-demand grocery delivery startup, raises $290M and ‘surpasses’ $1B valuation](https://techcrunch.com/2021/03/25/gorillacorn/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAJlp3MmkoY2oh1fHyjRLpZ9WETiOXClAmR6CL-0LOdgEoTi4uw4Qn2wwzHcgqBIHhsvKK4WQipkDq7K7hyBE_TchsGF8uAk9EVdYft1VtqsZ2FnOocyEnbb5IdofGivkfIiB4cI4msIAWYlhMotq9nf3kXuJ0DBss97vxcQWlWJ0)

Wikipedia,[ Diffusion of innovations](https://en.wikipedia.org/wiki/Diffusion_of_innovations)

 

### **Before you go: **

 * Need support with understanding how to implement network effects with your CRM,
   [reach out to us! ](https://phiture.com/work-together/)
 * Structuring research correctly is a crucial aspect of yielding solid insights
   that can be the basis of a mobile growth strategy. [In this article](https://phiture.com/mobilegrowthstack/how-to-translate-survey-results-into-actionable-insights/)
   we run your through how to do conduct this user research for mobile apps.  
 * Leveraging gamification to increase user engagement and retention is one way 
   to encourage network effects with your CRM. Check out [our article about gamification in unexpected places. ](https://phiture.com/mobilegrowthstack/gamification-in-unexpected-places/)
 * [Phiture’s Subscription Stack](https://phiture.com/subscriptionstack/) is designed
   to help growth marketers conceptualize their subscription optimization strategy
   and understand the essential components of running a mobile subscription business.
   CRM is vital across the stack, while network effects vital to the effective running
   of a subscription business.