Running a supermarket at the center of New York City is not an easy task. The high cost rent of NYC real estate properties and limited selections of products due to insufficient amount of spaces have plagued retailers frequently. FreshDirect, an online supermarket based in NYC, capitalizes on the wonder of technology and overcomes the difficulties of high rent and limited selections of products.

Firstly, the company focuses its business only in NYC and its neighboring areas. In order to lower the cost of rent, this online supermarket rents a huge warehouse with the size of five football fields in the industrial zone at Queens. This huge warehouse enables the company to offer a selection of products five times more in comparison with that of its main competitors at NYC. In addition, the location at lower rent industrial region helps the company to save considerably in terms of rent expenses.

Secondly, the company manages to maintain the freshness of its products. As for freshness, consider that while the average grocer may have seven to nine days of seafood inventory, FreshDirect’s seafood stock turns each day. Stock is typically purchased direct from the docks the morning of delivery in order to fulfill orders placed the prior night. The firm buys what it sells and shoplifting can’t happen through a website, so loss from waste and theft plummets.

Thirdly, the extra expenses of FreshDirect are low in comparison to traditional grcery shops. The company does not have to install the money and energy sucking open-air refrigerators since all customers purchase online. Moreover, shoplifting does not happen at FreshDirect because thieves cannot steal away products from an online storefront.

Nowadays, the service of Freshdirect is so popular that many apartments at NYC are redesigned with common refrigerators in order to receive delivery from FreshDirect when customers are not home. In the past five years, the number of grocery stores has decreased nearly 30% since the presence of Freshdirect.

Network effect refers to the effect when the value of a product or service increases as the number of users grow. When network effects are present, they are among the most important reasons for consumers to pick up one product or service over another. For instance, when it comes to online shopping website, eBay is clearly the one that stands out among thousands of other similar website.

According to the research of Dr. Gallaugher from Boston College, the value derived from network effects comes from three sources: exchange, staying power, and complementary benefits.

•         Exchange

A network becomes more valuable because its users can potentially communicate with more people. Every product or service subject to network effects fosters some kind of exchange. For instance, an MSN account will not be so interesting if only one person has it on this planet. A mobile phone will simply severely decrease its value of communication if very few people own it. For firms leveraging technology, this might include anything you can represent in the ones and zeros of a data stream, such as movies, music, money, video games, and computer programs.

•         Staying Power

Networks with greater numbers of users suggest a stronger staying power. The staying power, or long-term viability of a product or service, is particularly important for consumers of technology products. The concept of staying power (and the fear of being stranded in an unsupported product or service) is directly related to switching costs, and switching costs can strengthen the value of network effects as a strategic asset. And the elite Boston Consulting Group is really talking about a firm’s switching costs when it refers to how well a company can create customers who are “barnacles” (that are tightly anchored to the firm) and not “butterflies” (that flutter away to rivals).

•         Complementary Benefits

Complementary benefits are those products or services that add additional value to the network. These might include ‘how-to’ books, software add-ons, even labor. Products and services that encourage others to offer complementary goods are sometimes called platforms. Allowing other firms to contribute to your platform can be a brilliant strategy, because those firms will spend their time and money to enhance your offerings.