Why Families Are at the Heart of Leveraging Network Effects
And how you can tap into them by offering them a dedicated pricing tier
If I ultimately benefit from others using the same product I’m using, the company that made that product derives a benefit from what’s called a network effect.
In other words, the more extensive the network, the greater the opportunity for both the company making the product and those using it.
There is no doubt that network effects are critical to growth.
But I think companies leave a lot of value on the table by not thinking about the role of the nuclear family in generating network effects.
That said, a few companies do.
One of the best examples is Spotify. They achieved next level growth through their family plan. Instead of paying $10 per month for Spotify Premium as an individual, you can upgrade for another $7.99 per month and have six premium accounts for family members who live under one roof.
Netflix has a similar approach.
While big tech examples are useful, here’s how I think about family network effects in the context of new ventures and, in particular, direct-to-consumer healthcare.
The punchline is twofold. First, just marketing a family plan isn’t likely to work. Second, there is one place in the customer journey where a family network effect begins.
The Incentives That Drive Network Effects Matter (and Maybe Aren’t What You Think)
The benefits are clear when you buy or sign up for a product. And the reason why you did is important. But the reason it will appeal to a family member is probably very different.
The Spotify analogy works well in this context.
You sign up for Spotify to discover new music and play old favourites on demand and on any device. Paying $10 per month removes ads, and you think nothing of it.
A few days later music comes up in conversation.
Your parents join in and reminisce about the music of their day. There’s a good chance they don’t know much about digital music streaming or Spotify. However, they would probably benefit in the same way as you. But the reason they joined the conversation is that they want a greater connection to you. And using a service like Spotify is something they can have in common with you (and feel hip in the process).
You pick up on this cue and upgrade to the Spotify family plan. The incremental cost isn’t an issue, and you meet your parent’s need for connection (and music)!
Spotify has also benefited. They receive incremental revenue from your upgraded plan. More importantly, they now understand the musical interests and behaviours of two new people. The results (or network effects) include improvements in how they procure and serve music to everyone using Spotify.
How This Can Work in Healthcare
A more profound example of family network effects exists in direct-to-consumer healthcare.
Women generally have a greater interest in their health than men. They want to be informed and seek knowledge through their friends, literature, and specialists.
Women between the ages of 20 and 35 are also playing an increasingly active role in the family health conversation. And they are a particularly potent voice when their family has a history of disease.
Arming them with personalised insights about their health, which can be easily expanded to include their parents and siblings, deepens the conversation and knowledge in the nuclear family. It also provides insights for the platform to hone its expertise to improve how it supports the family. The network effects grow as one family talks with another family and so on.
Interestingly, this growing knowledge gives rise to other positive outcomes, including strengthening the relationship between family members and their doctor. This is particularly true when the platform creates an information bridge for doctors to understand, in the context of their field of expertise, the clinical data that support the insights delivered to family members. This dynamic helps doctors spend less time typing information into a computer and more time being present with their patients.
Knowing the Family Plan’s Place
A family plan is a product feature. But it’s not often a gateway feature. In other words, the key features of a product that help a person move closer to happiness or further away from fear must be marketed first. They then provide a gateway to secondary features, like a family plan.
However, I think it’s important to avoid thinking that a gateway feature is more important than a family plan.
The reality is that they play different roles at different times in the customer experience.
A family plan should be marketed but not at the expense of features intended to draw customers to the product in the first place.
It Starts at the Checkout
A customer’s purchasing intent is clear by the time they reach the online checkout. Just before confirming the purchase is the time to present the family plan offer, which should be a no-brainer and include three characteristics:
- Simple math that helps customers instantly realise they are getting a great deal
- A clear explanation of the benefits and limitations of the family plan
- Frictionless way to onboard family members
I think about it this way. One person enters the checkout experience, but at least two family members should benefit from the transaction.
At this point, it’s essential to realise that offering a family plan is not necessarily about making money. Founders and product managers should understand how far their unit economics can flex to accommodate discounts, but it shouldn’t stop there. They should also look to the bigger picture and model scenarios and thresholds to understand the payback for investing in building the infrastructure that enables network effects.
One Last Thing …
I think families live at the centre of the most potent network effects. And while it might be true that a family plan is a secondary product feature, there will be examples where it is the gateway feature.
And remember, this isn’t about plugging in an off-the-shelf software-based referral system and rebadging it to be a family plan. It’s about designing a frictionless experience that meets the needs of family members that might be hiding in plain sight.
I’ve found that this product marketing journey starts with one question: “How can families benefit from using our product?”