Author: K. Vinay | Winner paper presentation event at Estuary'18 management fest of Indian Maritime University
Abstract
Purpose – The focal point of this paper is to highlight the importance of retaining India’s millennial population and to provide a guiding strategy for e-commerce players to retain the millennials.
Approach – 324 sample points are collected from the contact list of a mobile phone. Logit regression analysis is used to test the relation between the age of the user and their choice of using a newly launched payments app.
Findings – Millennials were found more likely to shift to a latest app than their counterparts. This implies that retaining the millennial cohort is a major challenge for any existing e-commerce player.
Originality/ Value – By showing that the millennials are the more likely drifters, the paper provides marketing strategists with a target group. It proposes the application of the hook model for retention in the e-commerce sector to ensure retention of the millennial.
Keywords Millennials, E-commerce, Retention, Hook model, Google Tez mobile app
Introduction
In 2020, the average Indian will be only 29 years old, whereas 37 years will be the average age of China and the US, 45 in west Europe and 48 in Japan (Chandrasekhar, Ghosh and Roychowdhury, 2006). As a World Bank study on the knowledge economy of India puts it, India “has a critical mass of skilled, English-speaking knowledge workers, especially in the sciences. It has a well-functioning democracy. Its domestic market is one of the world’s largest.” This coupled with market reforms, opening up of the economy, growth in financial, software and information technology-enabled services have made India one of the most attractive investment destinations in the world (Chandrasekhar et al., 2006). Expedia’s 2017 millennial survey found that 94% of the millennials who undertook the survey were using a smartphone i.e. had access to the internet on a mobile phone. It also found that 62% of them preferred booking their tickets through an online agency and 19% preferred booking through airline/hotel websites directly (Business Wire India, 2017 June 12). The definition of a millennial here is the most commonly accepted definition i.e. those belonging to the age group of 20 to 35 years.
Thus, there is a continuously expanding working age population that is tech-savvy. LPG reforms have tremendously increased the number of jobs and have also made technological innovations and the internet widely accessible. With the government stepping in with programmes such as Skill India and Digital India, the millennial lead mobile economic revolution is almost here. Enter e-commerce. The area of marketing which deals with buying and selling of goods and services online. E-commerce is propelled by the increasing spending capacity of the millennials who are out to satiate their desire for ‘conspicuous consumption’.
This research paper presents a serious challenge for the marketers to appreciate. The paper flows in three inter-connected sections. Following the literature review, it begins with a discussion on the enormous growth potential of e-commerce in India. Taking lead from this, the first section of the paper posits that when it comes to retention, the millennial Indian would be more likely to shift to a new e-commerce service than a non-millennial. A logit regression model is developed using the data collected from a payment services mobile app. The results here, motivate the last section of the paper which focuses on the goal of retaining the mercurial millennial in the e-commerce services space using an existing model for retention.
Literature Review
Great amount of work has been done on the topic of consumer retention in the domain of marketing and psychology. For this paper, it was essential to understand the existing literature on the behaviour of millennials, customer retention in the e-commerce space and the Indian experience in this sector. Veloutsou and McAlonan (2012) studied the factors which govern the loyalty of millennials towards search engines and found that the attitude towards a search engine, the satisfaction derived from using it and the emotional attachment towards it were factors influencing loyalty. The importance of web site design in influencing loyalty and trust was studied by Cyr, Kindra and Dash (2008), who found that a local web site which was effective and culturally sensitive was more likely to earn the trust and loyalty of an Indian consumer. Customer satisfaction in the online banking sector of India was researched upon by Shah (2011) who pointed out towards facilitating banking needs, problem resolution, cost saved, convenience and risk and privacy concerns as the decisive areas for stimulating satisfaction and retention. Srinivasan, Anderson and Ponnavolu (2002) identify eight factors that influence loyalty in e-commerce, namely, customisation as per user preferences, ease of navigation or contact interactivity, cultivating a relationship with the customer, a viral community, attending to consumers pre-purchase and post-purchase intentions, Wide choice of products, user friendly design of the website and the overall image or the character of the website. Thus, Price in the age of the internet is no longer the decision maker, loyalty towards the product has become imperative for survival (Reichheld and Schefter, 2000).
Similarly, Leen, Thurasamy and Omar (2012) have also studied retention of millennials in a web environment and have found trust, user experience, social network, and usability and customer relations as the deciding factors among others.
Smith (2010) examined digital marketing strategies and their appeal towards millennials and found that online coupons, good shipping rates, discounts or rewards were highly influential in ensuring repeat visits to an e-commerce website. Studies on gamification have also showed how various methods of user engagement employed in a gaming set up can be used for retention in marketing (Paharia, 2014). The paper presented here develops this line of thought further by showing that it is the customers in the millennial segment who are more likely to shift to a newer platform and thus, goes on to use Nir Eyal’s hook model to provide a formal model for retention of the millennial in e-commerce especially the market for online services.
India’s e-commerce and the demographic weapon
The Indian e-commerce industry is expected to grow at a compound annual growth rate of 28 per cent from 2016-20 and will peak in 2034 surpassing the US to become the biggest e-commerce giant in the world, second only to China (IBEF, 2017). The driving force behind this potential is the youth population that is expected to grow to 440 million by 2020, becoming the country with the world’s largest youth population (Goldman Sachs, 2016). As the Goldman Sachs report (2016) describes, there are seven most common aspirations of every member of the young brigade, they want to look better, eat better, have a better home, mobility and connectivity, more fun, well-being in terms of health and education and luxury. E-commerce has become a conduit in bringing them closer to these aspirations by giving them a wider range of products, delivered at their doorstep. Further, increasing addiction to social media creates urges among the youth and this leads to higher consumption in an attempt to gratify themselves (Mandel et al., 2016). The total internet user base is expected to touch 829 million by 2021 which is 59 per cent of the total population (IBEF, 2016). Companies like reliance JIO are providing data packs at a very affordable rate and the government is also building infrastructure for increasing internet availability through free Wi-Fi zones in railway stations, parks and other public places. The average per capita income of an Indian millennial in 2015 was USD 2400, whereas those above 45 years earned about USD 2,150 (PTI, 2016). Thus, prospects for the Indian e-commerce industry look really bright. A host of venture capital firms and private equity firms are eyeing to invest in e-commerce start-ups. E-commerce is gaining acceptance among the urban mass especially for booking of travel tickets such as IRCTC for railways, Make My Trip for flight booking etc. or for availing cab services such as Uber, Ola etc. Another interesting feature of this demographic bulge is that the number of marriages will shoot up and India being known to spend on lavish weddings, would not shy away from displaying higher wealth during these glamourous occasions. (Goldman Sachs, 2016)
I. Millennial: The drifter
Such a spirited youth force presents e-commerce with a double-edged opportunity. On the positive, this implies that the youth are independent and are willing to spend on goods and services to satisfy their needs and desires. E-commerce facilitates this further by ensuring that the process of delivery and payment is made easier. However, one must note that this could also mean that the youth today would immediately shift to a close substitute, if the substitute can offer anything better.
To show this assertion that the millennials would be more inclined to adopt a new application or product than those who are not millennials (age above 35), a logistic regression model is developed.
Methodology
A sample of 324 people was taken from the author’s phonebook. Among these 324 people, there were 247 contacts which were between the age of 20 and 35 i.e. the millennials and there were 77 contacts which were not between the age of 20 and 35. 324 contacts were selected after removing multiple numbers of the same contact, advertisement numbers, landline numbers, foreign numbers and emergency numbers as these would play no role in our analysis. To test our hypothesis the recently launched Google Tez payments app was used. The Tez app, a mobile application, was launched in September 2017 and this test was conducted in December 2017 (approximately 3 months since the launch date). The Tez app provides information on all the contacts who are registered app users. This gave the paper a huge impetus as it could use the data provided by the app and proceed towards conducting the test.
Measurement
The logit modelling technique is special in its use of the dependent variable. The logit model allows the dependent variable to be categorical or dichotomous as opposed to the classical linear regression model. It further helps us by giving a probability for the dependent variable taking a certain value. Each contact who was also a Tez user was put in the category ‘YES’ and each contact who was not a Tez user was put in the category ‘NO’. Each contact was checked and verified if they were using the recently launched mobile payment service or not. A total of 50 Tez users were found from the entire contact list. The hypothesis tested was:
Ho (Null Hypothesis): A person being a millennial or not has no significant effect on his decision for choosing Tez
R programming was used to run the regression model. Here, we have taken a case where there is one independent variable (the age bracket) and moreover, both the dependent and the independent variables are categorical. On running a logit regression using the data, the following results were obtained:
Results
Clearly, the p-value is small enough to reject the null hypothesis at the 1% level of significance. Thus, we can assert that a person’s age category significantly influences his decision to join a new mobile payments app.
Now, we can go a step further and use the log odds value obtained above and calculate the probability that each category would use a new technology. The model here can be written in the form:
y = -3.62 + 2.20 AGE
We know, y here is in log (odds) form
From this, we can calculate the probability of a person switching to the Tez app (‘Yes’) given the value of the dummy variable ‘AGE’. Using the standard formula for logit modelling for calculating probability,
Pr (YES) = (1/1 + e^-y)
Notice that, ‘AGE’ is a dummy variable with 1, representing a millennial and 0, representing a non-millennial. Using the above probability formula, it was found that the probability of a millennial downloading the recently launched Tez app is approximately 20% whereas, the probability of a non-millennial downloading the same app is only about 3%.
This clearly indicates that the millennial Indian would be more inclined to join or move towards a new e-commerce platform. This poses marketers with a huge challenge. Thus, this paper shows that the millennials are more likely to switch to new platforms than the non-millennials. They have a much lower customer lifetime value (CLTV). Customer life time value is simply the amount of money made from a customer before the customer switches to a competitor. The target of any e-commerce firm is to maximise the customer lifetime value. Thus, retaining the millennials is one of the biggest challenges for the e-commerce sector and it needs to come up with a model to ensure their retention. In the next section of this paper, a formal model for retention is provided, which can be used by marketing strategists to ensure long-term sustenance of their product.
I. Hook model for retention
The paper has established that one of the primary goals of e-commerce is to find ways to retain the millennials. Nir Eyal, the author of the book ‘Hooked: How to Build Habit Forming Products’ develops the hook model to explain the increasing addiction of users towards social media websites such as Facebook, WhatsApp etc. He also applies the model to some daily use play store apps such as the bible app, a certain fitness app etc. and uses his model to explain these success stories.
This paper introduces the reader to the different aspects of the hook model, which it feels can be successfully applied to the e-commerce services sector. Thus, it tries to provide a formal guide for any firm trying to enter the e-commerce services or the mobile services platform. The hook model works in a four step cycle which is self-repetitive. It starts with a trigger and then uses this trigger to force the consumer into action. This is followed by giving the user variable rewards for taking the action and lastly expecting the user to invest his personal resources in the product. Last step ensures that he enters the loop again continues to use the product.
Trigger phase i.e. the first phase, is what gets the consumer to the product or the service. A trigger can be of two types external and internal. An external trigger is any external stimulus that motivates the consumer to get attracted towards the product. This could be in the form of advertising, preloaded apps, word of mouth etc. On the other hand internal triggers are personal to each human being. We all face feelings like boredom, anxiety, depression, joy, inferiority etc. at one or the other point in time. No human being is immune to such internal triggers. These compel the being to look for avenues to distract himself from the itch. Such avenues provide the user with a momentary outlet. Internal triggers are very effective as they come from within and occur often. Marketers must channelize these triggers by making sure that the user turns to their product as an immediate source of remedy.
Action phase begins as soon as the user turns towards the product either due to an external trigger which attracts him or an internal trigger which compels him to use it to seek relief. Now, the characteristics or features of the product become the prime focus as soon as the action phase begins. A simple guiding point here is that the easier the product the better it is. So much so that performing the action should be easier than thinking. Professor BJ Fogg at Stanford University introduces three things that are necessary for an individual to enter the action stage. He presents these using a mnemonic B=MAT, where ‘B’ stands for behaviour, ‘M’ means the user should have sufficient motivation (M) to carry out the task, ‘A’ means he should have the ability (A) to perform the task and ‘T’ is a trigger (T) which must necessarily be present to induce him into action (Eyal N., 2014).
For the product to ensure that the MAT mechanism is in effect, it should meet six principle characteristics: it should not be time consuming (time), not be expensive to carry out (money), not be physically challenging (physical effort), not be mentally challenging (Brain cycles), Should be socially acceptable to use it (Social deviance), Must not be a non-routine activity (Non-routine). These features are intuitive and one can easily think of successful social networking cites such as Facebook, WhatsApp and mobile games such as Candy Crush, Pokémon Go that highly focus on these characteristics (Eyal N., 2014).
The third phase of the hook cycle is the variable rewards phase. Research has shown that it is not the actual rewards but the anticipation of getting a reward which increases activity in the brain’s pleasure centre. Human beings have an insatiable desire for novelty. Novelty sparks our interest and this makes us pay more attention towards the product. Thus, it is important for a product to continue to invest in creating something that attracts our attention. By giving variable rewards, the product can ‘salivate’ the user each time he anticipates a reward from it. A reward here need not only be monetary but also takes the form of social validation, personal satisfaction and pleasure among others. Once the variable rewards phase ensures that the user is considerably interested in the product, the investment phase i.e. the final phase begins.
The investment phase focuses on the personal resources such as time and effort which the user is investing in the product. Thus, the more time and effort that is put in the product, the more the user starts valuing it. This ensures that the product grows on the consumer and he starts using it again, initiating the hook cycle (Eyal N., 2014).
Case Study
The recently launched Google Tez mobile app replicates the characteristics of the hook model. It is a payments app and is a new entrant in a field with dominant players such as PayTm, Ola money, BHIM, Airtel, Truecaller etc. Tez relies hugely on external triggers to expand its customer base. To ensure an extremely effective word of mouth or a relationship trigger, it promises to give its user 51 rupees every time a new user is introduced to the app. Moreover, the new user would also get 51 rupees as a gift from the app (Picture a.) A detractor here is the new user’s trust in the system but the app ensures that there is a two-step verification procedure and the money sent or received is immediately debited or credited from the user’s bank account. This gives great confidence as the user sees the money being directly transferred to the bank account. Now, the job of the action phase begins. The app simply follows the steps outlined above. It ensures that the interface is very basic and does not require a lot of thinking. It does not charge the user any extra fee for transferring money and can be done very easily with a simple internet connection. It is a very convenient system as once the bank account is linked with the app, the user can transfer amount in any denomination as required. As more and more people start using the app, the social acceptance factor steps in and this ensures that the usage of the app becomes the norm rather than an exception. Millennials live a fast paced life and settling bills using cash becomes a hassle, Tez tries to relieve this pain by providing a simple digital transfer system. However, to ensure retention, it came up with a novel idea. For every transaction above 50 rupees a consumer makes, he wins a ‘scratch card’. The scratch card directly gifts the user a cash reward, which is immediately transferred to the user’s bank account (picture b.). The scratch card is used to increase the feeling of anticipation of a reward. Each time, the scratch card gives a different amount which ranges from ‘better luck next time’ to even 1000 rupees. Thus, using the variable reward feature it ensures that the consumers keep making transactions using the Tez app. It even offers a bonus scratch card for 1 lakh rupees once a week, if a transaction of over thousand rupees is carried out. Though the rewards are normally not massive, but the anticipation ensures that significant interest is generated. To ensure social validation, the app also gives the user an opportunity to share with friends on various social media platforms the gift money won. This brings in rewards of the tribe, when people look at your post and initiate a social conversation.
Finally the investment phase enters at this very moment, when the consumer is enjoying the app. Tez app ensures, that the consumers on finding the gifts and rewards, would convince their friends and family to join it. They would even explain how the complete app works, its features and ultimately convince new users to join the app. The existing users often help the new user in his first transaction, creating an extremely powerful word of mouth marketing strategy. This investment of time and effort into getting a new user to use the app, makes it more valuable to the existing user. He starts loving the app and this brings him back to the first phase where an external trigger, maybe for some payment transfer, he would now use this new app as he is hooked to it.
a. New user reward
b. Variable reward received for a transaction
Source: Google Tez App rewards won by author (2017)
The observation presented here gives a concrete model for a new entrant to apply in this intense sector. Other apps such as Ola cab services, Uber eats etc. are also increasingly working along a similar framework to ensure high customer life time value.
Conclusion
India adds 3 internet users every second (Morgan Stanley Research, 2017). E-commerce is brimming with opportunities for investors and innovators to harness. This paper has shown that marketing efforts should be concentrated more towards making the new service appealing to the millennials. This is certainly a challenge as competitors constantly strive to create products that our better than the existing ones. As Joseph Schumpeter described capitalism by terming it as the ‘gale of creative destruction’ implying that a continuous movement will keep taking place destroying the old and replacing them with the new, e-commerce is set to follow a similar path from an innovator’s perspective. Only those who can adapt, understand and innovate will survive and enjoy a place in the retail market and in the smart phones of customers. By making the Hook Model (primarily designed for social media apps and routine apps) adaptable to the e-commerce sector for mobile services, this paper has shown a new way of thinking about retention strategy. It may not be a one size fits all model but it certainly provides marketers with ‘what to look for’ when designing an effective e-commerce service. Further research in this field could quantify the effectiveness of applying the hook model for customer retention. It could be tested in the product market to see whether it is as effective for retention as it is seen in the case of the payment services app case study discussed here. Hook model could compliment gamification strategies and become a formidable doctrine for achieving viral consumer appeal in this ever-changing sector.
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