Study shows online friendships drastically increase E-commerce purchases

Brands are adapting to the findings by making every social interaction between their users more profitable.

A 2015 study on peer influence in e-commerce has shown that people are more likely to use an online service if their friends use it.

The research was published by Ravi Bapna and Aked Umyarov of the Carlson School of Management at the University of Minnesota in an edition of Management Science, a journal of the Institute for Operations Research and the Management Sciences (INFORMS).

According to the authors, the Holy Grail of current research in online social networks is proving the presence and power of peer-to-peer influence. Some studies have shown that user behaviour and traits tend to cluster in social networks. Various conflicting mechanisms, such as common interests, peer pressure, and other elements, compete to provide an explanation for this.

Bapna and Umyarov designed an experiment to examine the causal peer influence in a sizable online social network’s broad user base.

While conventional knowledge focuses on employing influential users to propagate ideas and behaviour on social networks, the research shows that even common “John Doe” types of users can persuade their friends to subscribe to premium services.

Every interaction counts

Past studies have shown that friendships and peer networks can influence decisions to buy products and services, especially in online environments. A 2019 study explained that serendipity in online shopping environments can be shaped by “peer-generated content” and connection to “online friends”. It describes how social commerce and the integration of social media and electronic commerce can foster serendipity and are influential in a shopping context.

This becomes more important since information overload and preprogrammed recommendation systems can make product selection either lacklustre or arduous. An older study, which focused on offline sales, noted that sales managers with significant social networks are more likely to have better professional outcomes. 

“Firms should encourage managers to improve their friendships in order to access valuable information that will enhance customer knowledge and support their sales efforts,” the researchers said.

Companies are adapting to these trends to. Canesta, a full-service digital marketing agency that creates experiences centred on people, helps to connect brands with individuals and the resources to make every online shopping interaction more meaningful. The firm is also creating and enhancing optimal user experiences in order to promote the brands the agency works with, connect with potential customers, and establish a strong presence.

The significance of peer influence

The research was based on the information from Last.fm, a freemium music website. The largest connected portion of the Last.fm network, which consists of 3.8 million users, was the basis for the panel data collection. The authors also kept track of website-reported social engagement data and self-reported demographic data.

With a huge number of free members and a small number of premium subscribers, Last.fm is a thriving community of freemium members. Similar to many other freemium communities, a disproportionately large chunk of business income is generated by premium users.

Free access to the most basic features and material are often provided in freemium social communities, whereas more sophisticated, premium features are typically paid for by users. For instance, while premium customers to the Last.fm website enjoy uninterrupted, commercial-free listening, free users are interrupted by advertising while listening to music.

However, staying afloat and long-term profitability demand that businesses such as Last.fm actively seek how to convert free users to premium members.

Bapna and Umyarov explained that the small percentage of the premium subscribers on Last.fm are more likely to be socially connected, pointing to the possibility of peer influence in the purchase of premium subscription. 

Their analysis of the data collected shows economically and statistically significant estimates of peer influence and, more importantly, establishes that peer influence is in fact a cause. They demonstrate that the impact of friends increases a customer’s likelihood of purchasing a freemium service by more than 60% as a result of the influence of an adopting friend.

Additionally, the researchers discovered that users with fewer friends have a higher relative rise in the likelihood of adoption when peers exercise influence than users with more friends.

According to research from 2009, Last.fm’s free users generate about 12 per network-registered users every month, compared to the over 24 times more value paid members who pay $3 per month.

Canesta’s CMO, Stav Sarandiev, explained that strategy is at the heart of ensuring that customers are not perpetual freeloaders. Hence, freemium communities like Last.fm must clearly define strategies on how to achieve profitability. Canesta has experience in making this happen.

“To achieve your business objectives, conduct research and analysis, and then formulate a strategy, we create a path for your customers to follow,” Sarandiev said.

“In addition, we promote your brand, transform prospects into paying customers, and report on the progress of engagement and conversions.”

Chidirim Ndeche

Chidirim Ndeche is a reporter at Breakthrough.

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