Clubhouse’s invitation-only strategy is a stroke of genius

Did you hear about the new social network, Clubhouse? It’s an audio-based social network, where the content can only be consumed live. It is generating a lot of excitement, and recently even hosted a talk by Elon Musk. 

Clubhouse is using an unorthodox way of recruiting users, though: you can only join if you receive an invitation from a current user. And… I think that this strategy is a stroke of genius.

Why?

First, because restricting who can join the network creates scarcity, and scarcity increases desirability.

This was shown in the famous cookie jar experiment by Worchel, Lee and Adewole, whereby researchers displayed similar cookies in two jars – one jar had just a few cookies (scarce supply) and the other was full (abundant supply) – and found that cookies in the scarce supply condition were rated as more desirable than the ones in the abundant supply condition. We have a cognitive bias whereby we assume that things are scarce because they are valuable, and we don’t want to miss out on something that is valuable!

Desirability is really important for Clubhouse because, let’s face it, no one needs yet another social network in their lives. So, by creating a barrier to joining, Clubhouse paradoxically increases the number of people that want to join. 

Second, because acquiring users through referrals actually results in more loyal and more engaged customers than acquiring customers through other means (e.g., advertising).

B. Ramaseshan, Jochen Wirtz and Dominik Georgi compared the effect of customer satisfaction on loyalty, in a Bank’s customer database, and found that:

“while customer satisfaction positively influences attitudinal loyalty* for both types of customers, the effects of satisfaction on attitudinal loyalty are significantly stronger for (referral)-acquired customers than non-(referral) -acquired new customers. This finding suggests that a customer acquired by the firm through a (referral programme) becomes more involved with the firm, evaluates the company more favo(u)rably, and has stronger attitudes toward the firm than non-(referral)-acquired new customers”. (page 698)

The researchers also found that switching costs become less important for referral-acquired customers than for non-referral ones, and that loyal customers acquired through referral programmes “generate considerably more business (i.e. referrals), purchase more products (i.e. more cross-buying opportunities), and spend more (i.e. total spend), thus delivering significantly more value to the firm than loyal non-(referral)-acquired new customers”. (page 699)**

Given that a social network needs large numbers of users to sign up, and needs engaged users who will produce content that entices others, it is crucial for Clubhouse that its users “love” the network, and that they are active in the production of content and in the recruitment of other users.

And that’s why the invitation-only approach is a genius stroke for Clubhouse. 

Which camp are you on, when it comes to Clubhouse: love it or hate it?

* when customers “love” a brand

** This research was reported in the paper “The Enhanced Loyalty Drivers of Customers Acquired Through Referral Reward Programs”, which you can find here.