How can online retailers build habit forming experiences into their ecommerce businesses?
My guest on today’s show is Nir Eyal – a New York Times bestselling author of a book that teaches entrepreneurs how to build habit-forming products: “Hooked: How to Build Habit-Forming Products“.
Nir’s work is very much centred around building successful habit forming products, particularly in the technology scene. His HOOKED model fleshes out the BUILD phase of Eric Reiss’ build – measure – learn LEAN methodology. He is a product development and consumer psychology expert and in this episode, explains how to get your customers HOOKED to your store’s offering.
01:46 – Introduction of Nir Eyal
03:05 – Enquiry into habit forming technologies; gaming and marketing industries and methodology
06:00 – Difference between habits and addictions.
06:47 – The four basic steps in the hook model: trigger, action, reward and investment.
06:52 – The breakdown / types of triggers.
08.25 – Breakdown to internal triggers.
10:30 – Action phase of the hook model.
11:03 – Retention – eCommerce.
14:00 – Engagement / Monetisation / Creating Habits- Amazon, YouTube
17:00 – Application to referral marketing.
18:02 – Startup ecommerce businesses and the hook model.
19:10 – Businesses and their habits.
20:35 – Commerce and Social Networks.
23:01 – Personalised ecommerce / general personalisation.
27:30 – Communities.
28:11 – Consumer Psychology & implementing the hook into commerce.
29:00 – Resources.
Tweetables & Quotes
What Amazon has done which is really brilliant for so many reasons you know it started out as a book seller but then now it’s the everything store as Brad Stone calls it.
There’s a reason that Ikea sells so much more than furniture, some of those products are actually lost, some of the products they actually don’t make much money on at all…
What I noticed at the intersection of gaming and advertising is that these two industries are reliant on, you know, let’s face it; mind control.
Really what I wanted to do was to help entrepreneurs build better products and services by giving them a guidebook to consumer psychology to customer habits.
These impulses with little or no conscious thought and so what these habit forming products do is that they create these connections,
The brain is a pattern matching device, you know it’s one of the things that our brain is best at, is finding the pattern to its problem
Audio Length: 30 minutes and 24 seconds
How can online retailers build habit forming experiences into their e-commerce businesses? My guest in today’s show is a New York Times bestselling author of a book that teaches entrepreneurs how to build habit from in products.
He’s a product development and consumer psychology expert and he is here to talk about how to get your customers hooked to your brand and stores.
(Voiceover) Welcome to the 2x e-commerce podcast show where we interview founders of fast growing seven and eight figure e-commerce businesses and e-commerce experts. They’ll tell their stories, share how they 2x’d their businesses and inspire you to take action in your own online retail business today. And now, here he is, the man in the mix, Kunle Campbell.
Kunle: Hello 2x’ers; welcome to the 2x e-commerce podcast show. I’m your host Kunle Campbell and this is the podcast where I interview experts. Experts in e-commerce, experts in Retail, experts in technologies that drive online retail and of course experts in digital marketing who will help you uncover e-commerce marketing tactics and strategies to grow your stores so if you are keen on growing metrics such as conversions, average order value, traffic, repeat customers and automated sales you are in good hands here.
On today’s show I’d like to welcome Nir Eyal to the show, Nir for those of you who don’t know is the author of a New York Times bestselling book on Consumer Psychology and Technology called Hooked – How to Build Habit- forming Products. He’s a prominent figure in the Silicone Valley start-up scene with specialist expertise in product development and consumer psychology. Nir’s hooked model flashes out the build phase of Eric Reece’s Build, Measure, Learn, Lean methodology. Nir’s work is very much centred around the building of successful habit forming products particularly in technology. I read his book and I was like “I have to talk to this man”. He’s here to talk to us today about the hook methodology in the context of online retail hopefully and without further ado, I’d like to welcome to the show; Nir. Welcome to the show.
Nir: Thank you so much thanks for having me.
Kunle: Fantastic, could you take a minute or two to tell the audience more about yourself please.
Nir: Sure, so I started my enquiry into habit forming technologies back when I was at my last company. I was at a company that helps start that with the intersection of gaming and advertising and what I noticed at the intersection of gaming and advertising is that these two industries are reliant on, you know, let’s face it; mind control. These two industries are dependent upon in fact that advertisers don’t spend billions of dollars for their health and gaming companies; you know there’s; you’d be hard to find an industry that’s more dependent on changing user behaviour and so what I noticed was that the intersection of those two industries is that business methodology that I thought should be used by others that it shouldn’t just be gamers and advertisers that use these methodologies that think there was a lot of potential in all kinds of industries to help people change their behaviours for the better and so what I wanted to do was to kind of bring these techniques to the broader audience so that people building all sorts of experiences and all sorts of products to improve people’s lives could use these methodologies to help people live happier, healthier , more productive, more connected lives by using the psychology of the (unclear 04:12:4) design.
Kunle: That’s quite interesting. Did you put the methodology together at an instant or was it developed over time based on your observation of the gaming industry?
Nir: Oh it happened over a very long period of time; I spent about three years in the advertising and gaming industry in my last company and then I spent another three years doing research, spending a lot of time in academic libraries trying to combine what I learned in the field with what we were seeing in the academic literature and what I found was that there weren’t that many people out there who had; you know; started companies who had been CEO’s who had built products and yet who could look at the psychology and look at the academic literature and try and actually put it to use. I didn’t see anybody who was filtering how much interesting content there is out there but maybe not as practical content so that’s really what I wanted to do was to help entrepreneurs build better products and services by giving them a guidebook to consumer psychology to customer habits.
Kunle: Interesting, I view it as a why. You’re answering the why question. Ok, could you breakdown the four step hook model to building addictive products please?
Nir: Sure but let me just correct a little bit of what you said. It’s not actually addictive because addiction has a very specific definition. An addiction is a persistent compulsive tendency on a behaviour or substance and addictions are always bad, right, addictions hurt the user. So we don’t want to create addictive products and my book is not titled how to build addictive products by book is titled “How to build habit forming products” because habits are something else completely. Habits are nothing more than impulses to do a behaviour with little or no conscious about it. This itch is this urge to do a behaviour without really thinking about those behaviours and it turns out that we can have good habits as well as bad habits right; everybody thinks about the bad habits but we have lots of good healthy habits in fact about forty percent of what we do every single day; day in and day out is done purely out of habit and so I believe that we can harvest these habits to help us live better lives and so the model that I described in my book is called the Hook model and it’s a methodology and experience designed to connect your user’s problem, whatever it is that’s plaguing your users day to day life, with a solution with enough frequency to produce a habit so when we can cycle users through these four steps of a trigger action reward investment; their successes cycle through these hooks. This is how customer preferences are shaped, how (unclear 06:43:5) are formed and how these habits take hold so these hooks have four basic steps, they have a trigger, an action, a reward and finally an investment.
Kunle: Ok, what’s a breakdown of the trigger?
Nir: Sure so triggers we have two types of triggers. Triggers are things that cue us to action, they tell us what to do next and we have two types of triggers so we have these external triggers that give us some information inside the triggers itself so a (unclear 07:11:00) button or a friend telling you through word of mouth about this great new app you should try out or a play button on the YouTube video. These things that tell us what to do next, right an app notification that tells us to open the app, these things explicitly tell us what to do, that’s the external trigger so we’ve all seen those. Though it turns out to be absolute critical in forming these long term behaviours and these long term habits is forming an association called an internal trigger. An internal trigger is something that tells the user what to do next, just as reliably as those external triggers but in this case the information for what to do is not stored in the trigger itself but instead informed through an association in the users mind so what we do when we’re in a particular place or certain situation, a particular routine, when we experience particular emotions dictates what we do next. These impulses with little or no conscious thought and so what these habit forming products do is that they create these connections, these links with the associations, with these internal triggers but every time we experience these internal triggers we automatically use this product or service.
Kunle: Ok, I’d like to breakdown internal triggers, is there some sort of map or a blueprint of internal triggers and then you kind of map internal triggers with technology in this case with internal triggers so there could be boredom as you literature in your book and you map that out to a product you tube so is it finite the you blueprint for internal triggers and do external triggers kind of change; interchange so that you know; Facebook might not be Facebook in twenty years, something might you know replace that internal trigger for our need to connect to other humans.
Nir: Right, there’s a lot of different questions here posing which is great. There’s a lot to this field, it’s fascinating. So let me, I’ll tackle a few of these different questions so in terms of what we’re addressing; it has to be some kind of routine, some kind of situation or place or an emotion, something that occurs frequently enough in the user’s life in order to allow us to create this association so anyone of these internal triggers, the important thing is that there is some kind of connection between what’s occurring frequently in the users life and the users behaviour right with our products, our service.
And so that’s the critical element, that it occurs frequently enough to form this habit with, so that’s the important part, now the most frequent internal triggers are these emotions and not just any emotions but a negative emotion so what we do when we’re feeling bored or lonely or indecisive or fatigued or uncertain; what we do when we feel these internal triggers, these emotions dictates what we do next. Why? Because these things are painful, these things don’t feel good and so to find relief; the brain is a pattern matching device, you know it’s one of the things that our brain is best at, is finding the pattern to its problem so when the brain experiences one of these negative emotions it looks for relief from something and whatever can provide relief reliably; that’s where these habits are formed. Its association of these itches, these desires, these cravings, these wants.
Kunle: And then it drives us to take action.
Nir: Exactly. Which is the next step of the hook. The action phase.
Kunle: Great, now this is an ecommerce podcast and I’d like to sort of relate this to commerce. You’re single reference to the commerce, to ecommerce in your book was Amazon and there’s quite an interesting example, you mentioned the fact that Amazon allows competitors, you know, advertise directly. It almost creates a utility effect, a retail utility effect where your spoilt with choice and you have no choice but to come back again and again because you know you’re going to find what you’re looking for at every given point in time and most times because retention to me is a health of business, cost my lifetime value.
Nir: Right, you’re absolutely right. A retention is incredibly important as most customers don’t buy what (unclear – background noise 11:09:07 – 11:12:9) most customers that only buy, sorry, thirty percent of customer only buy once a year on ecommerce sites which is abysmal right, that’s terrible. You spent all that money and effort trying to find the customers right and just having thirty percent of these use the product, use your ecommerce site more than once a year is horrible so we really need to figure out how to re-engage and part of the problem is that most ecommerce sites are only used when somebody needs something very specific so what Amazon has done which is really brilliant for so many reasons you know it started out as a book seller but then now it’s the everything store as Brad Stone calls it. The Everything Store so what does that do? Think about it, one of the most important criteria, there’s only two things that we need to form a new habit. Number one is that we have to have the behaviour occur with sufficient frequency and so think about how frequently you need anything right, that’s very frequent whereas opposed to most ecommerce sites, they only sell one thing, right, the Keegan dog food or chocolate pudding or whatever; paint sprayer, spray paint, whatever it might be, most ecommerce sites only sell one thing and so it’s no surprise that users only go to them when they need that one thing. So that’s the biggest shortcoming, that’s why most ecommerce sites cant form habits; it’s that their product just isn’t needed frequently enough to form this habit so does that mean that ecommerce sites should throw in the towel and say ok that’s it we’re done, we can never form a habit? Not necessarily. I was related (quick story) I was at a conference lately that hired me to come give a speech in front of seven hundred real estate agents, people who facilitated the sale of real estate and the person who introduced me said now we’re going to have an expert Nir Eyal; he is going to tell you how to make home buying and selling a habit. Well I stood on stage and said listen, it’s impossible to form a habit around buying and selling a home; why? Because it doesn’t occur frequently. It’s the opposite of a habit. Why? Because it’s something that doesn’t occur frequently and requires a ton of conscious thought, the definition of the habit of a behaviour that occurs with little or no conscious vibe but home buying is the opposite right. We dwell and we go back and forth and we think about home buying a lot, it’s a very thoughtful decision so I did my workshop, I did my talk and at the end of the workshop a few agents came up to me and said look, I realise that buying and selling homes is not a habit but I know what I am wanting to create into a habit.
One real estate agent said look I am going to create an association with an internal trigger of anybody in my neighbourhood that I service feel uncertainty about money. When they feel fear that they might not have enough money for their retirement or that the stock market is bouncing up and down and they don’t know how to (unclear 13:56:00) a sector, kids, college fund or whatever it might be. When they feel fear about money; that’s negative emotion, I want them to call me. That’s the habit I want to create, or I want them to go to my website or my app that I’m going to create so that’s a perfect example. Another real estate agent said I want to create the habit of whenever there’s uncertainty about what’s going on in my neighbourhood this weekend, what kind of entertainment options there might be, I want people to check my newsletter, I’m going to send out a newsletter every single week. It’s going to tell you the top five things to do in your neighbourhood and I want people to have the habit of opening up my email every single week so what does this lead me to; here’s the lesson, here’s the tweetable phrase that I want everybody to remember “the result of engagement is monetisation” so alright you’re an ecommerce site that sells the product that’s infrequently bought, no problem. What else can you offer your customer, what other value can you value your customer frequently enough to create a habit to get them engaged so that eventually the result of that engagement will be monetisation; just like that real estate agent who becomes the source; becomes the first person you think of when you have fear about money, the habit is I’m going to call my real estate agent, guess who they’re going to call and they’re going to sell or buy a house? They’re going to call their real estate agent of course and so that’s how ecommerce sites need to think about this is what other habits could they form with their product or service that as a result of that engagement, as a result of that goodwill, the value they provide their users, their users will come to them when they need to actually transact.
Kunle: And I see that is probably why content marketing is such a buzz at the moment. There’s a website called Digital Rev, they’re based in Hong Kong and they sell cameras and accessories and they have the biggest YouTube channel in Photography.
Nir: Right and YouTube has created many millionaires from this technique of people saying you know, not a hard sell but people making this daily video. I spoke to this wonderful woman named Mimi who sells hair extensions and that’s her business but you wouldn’t know it by watching her videos because she always talks about the name of her hair extensions maybe one time per video and she’s making millions of dollars selling these hair extensions because the result of the engagement with her users, with her viewers, her users are coming to figure out nice hairstyles but the result of that engagement, that when they’re in the market to buy this product guess who’s product their going to buy.
Kunle: Just talking from mind; I have another question with regards to the hook model and well I’m flipping it on its head here. What about its application to referral marketing so furniture, you hardly buy furniture, you probably buy furniture once in a decade or once in five or six years but for furniture retailer, online retailer would you agree or disagree if you could embed the hook model into the post chase phase of their interaction and so when their friends of their family are looking for furniture they recommend the online retail business.
Nir: Well, there was a point, that last question around figuring out other things that are engaging the result and monetisation so I always think of what other services, what other pain points can you scratch, can you alleviate for your customer that aren’t related necessarily to the furniture, I mean Ikea’s a perfect example. There’s a reason that Ikea sells so much more than furniture, some of those products are actually lost, some of the products they actually don’t make much money on at all but, the part of it is that they wanted to have a good mix of products that you buy frequently so you go to Ikea not just when you want to buy big furniture, you go to Ikea when you want to buy Swedish meatballs and when you want to buy crayons, and when you want to buy things for your children’s room that maybe are just small trinkets right, maybe it’s a five dollar, six dollar purchase but the idea that you going to Ikea as your go to stop for all sorts of things not just the big furniture purchase.
Kunle: Yeah that layer, that expense really is that the unique expense you find nowhere else.
Nir: Right that’s part of it too right.
Kunle: Ok, should start up ecommerce businesses start thinking about the hook model from a product level, a case in mind is a UK retailer, I’m going to interview them in a week or two and they’re called lost.name and they’re a personalised children’s picture book so basically I bought a book for my son, my son’s name is Tommy, they write a tale or story basically on his name and how he found his name, how he lost his name and they have grown phenomenally and there’s subscription ecommerce businesses like you know Birch box, Naked Wines, Greys Nature Box, Dollar Shave Club and Bar Club and what they have or what all these companies have apart from lostmyname is this frequency of purchase and they’ve managed to kind of become habitual. Do you see ecommerce changing, is subscription based ecommerce more fad or do you see it being more long term as people start to adopt and start to think from a hook point, you know how do we get them hooked in the head first, you know how do we get them more habitual first and how do we translate these habits to retention to money, to cash.
Nir: So to be clear not every business needs a habit. There’s plenty of businesses that can drive users to their place of business with all kinds of things, right you can bring users to your place of business with the display advertising, you can use search engine optimisation, you can have a physical storefront right, set up shop on some corner and you can have users come by and buy your wares. So it’s not that you have to just have a business that needs a habit, that’s not what I’m advocating for, this isn’t magic pixie dust that you’d pour on every business and you’ll have the next Facebook, some business just don’t need a habit at that time but if your business model needs a habit then you need a hook and that’s the point here, is that there are certain businesses that rely upon habit, who could not function, they would go out of business if they were not habits and that there’s a lot that we can learn from consumer psychology even if your business doesn’t need the entire hook, even if you don’t necessarily need a habit, there’s a lot of things that we can do to increase the desired behaviour that we want to see with our customers by learning these principles of consumer psychology so you can take the hook model piece meal, you can learn about how to create better triggers, how to make the action more likely to occur, how to insert variable rewards, how to create the investment that bring people back and you can take the lessons piece meal and build a better product or service by understanding these principles of consumer psychology.
Kunle: Interesting, very very interesting ok I have got the question with regards to incorporating social into commerce. A case in mind is Naked Wines, there a wine club and basically they sell wine to members and you could follow wine makers on their sites, have conversations with the wine makers of the wine you actually drink and that seems to help them with regards to retention because you build affinity with their brand but more recently I’m starting to see tech giants especially in social media like Pinterest just realised the buy button and googles released a buy button and Facebook there have been rumours about Facebook having a buy button as well as Twitter; do you think there’s a clash going on, can online retailers still harness a social later into commerce or do you think they could just piggyback off these platforms and use the goodwill they’ve build with their members to sell to their members?
Nir: It has to be authentic, the idea here is that, you know, in certain commerce into social network; I don’t think there’s a hard and fast wall of which platform shall we use for this is very dynamic, this is constantly changing. What’s important is that it has to scratch the users itch, what I often tell them and frankly way too frequently you see is that some ecommerce retailer will say to themselves “oh my gosh Facebook is a big deal so we should put Facebook all over our site; without asking ourselves you know, does it make sense for me to like this, to comment on this, to socialise around this product, is it something that would scratch the users itch? What is the users itch to begin with? And if you don’t understand those questions then you know, users are going to call you for what you are which is being a fraud, that you don’t understand why you’re doing things, your just doing them because they’re trendy and that’s a bad idea so you know we want to insert these social networks, we want to insert the ability to connect with other people. It’s a very powerful motivator but it has to be used appropriately when it actually provides value to the user where it actually scratches their itch and that’s why we’re seeing, you know we’re seeing a lot of sites these days yanking out a lot at these social networks from their sites because they finally are wakening into the sights that they’re not actually really adding value; the users don’t find them very beneficial. There’s I don’t know why I would like that (unclear 22:59:9) you’re selling on your website. It doesn’t make any sense and so without understanding why these things scratch users itch then it just clutters the experience and makes it a lot worse.
Kunle: Ok what about personalised ecommerce or personalisation in general? What role do you see personalisation playing habit forming experiences particularly to commerce?
Nir: So I’m very big on personalisation, I think it can yield some amazing results, so in the reason why a theoretical basis for a why is that the investments says on the hook model says that when we put something into the product, when we provide data or (unclear 23:28:6) or some kind of work that we do to make the product better with use, we become more committed to it; it makes it more likely that it will return the future so you think about it, one great example of personalisation of course everybody thinks that Amazon; the more I use that product the more data I’m giving them just possibly it becomes better and better for me right, I get recommendations that are better, they have all my information about my addresses that I ship to various members of my family, right so the more information I give them, the better they become as a service for me and so it becomes harder to leave, if tomorrow knows an Amazon competitor that kind of done me out even if they were offering better prices at this company, that they would have to learn all my preferences that Amazon already has so I’m very bullish on personalisation because I think that it’s part of this investment save.
The problem is that for most companies that work on a small scale, it’s a hell of a lot of work; we have seen this service providers that can come in and easily implement kind of personalisation as a service. There are some companies that can by enlarge it requires a lot of heavy lifting which is really a competitive disadvantage for small ecommerce retailers; it’s really a problem because the big guys are doing this themselves right, the big ecommerce stuff forms understand how much personalisation drives sales and they’re on it. They’re doing it full speed ahead; their building their own solutions and unfortunately it’s going to be the smaller people who miss out on the better personalisation because it’s just so hard to implement.
Kunle: From your experience as a consultant and in the start-up world, what are the first steps to take with personalisation or creating a personalised experience really and proclaim commerce?
Nir: Right so I think it would start by asking yourself the (unclear 25:10:7) question of what bit of work does the user do to increase the likelihood and the need of using a product in the future? So that’s where I’ve seen personalisation go wrong is that people say well lets personalise because we can and that’s a bad reason (laughs). Instead we ask ourselves what piece of information could we ask the user to give us; what can we ask the user to do that will make the experience better for them with time and that’s what we should personalise around so that’s the first place to start. What’s the bit of work the user does or piece of information they could give you to make the site better with use.
Kunle: Which would be unique case by case basis, really varied.
Nir: Right, based on the product you’re selling exactly and the habit you’re forming.
Kunle: Exactly yeah. So let’s imagine; I’m just going to wrap up, quite mindful of your time, lets imagine us an e-tailer selling wallets and leather goods online; what metrics should I use to kind of determine what the hook would be for starters?
Nir: The first thing you should do is to sit down and actually plot out what the hook is, so sit down and write for yourself what is the trigger actually worn investment, the force that’s the hook mode is a lot more detailed about this in the book than we have time to cover in the last thirty minutes together but that would be the first place to start is what is your hook? What, the habit that you want to create, with enough frequency to create this association with an internal trigger in the user’s life that would be the very first step. Then once you know that behaviour and you know the internal trigger that you are going to associate it with, then you can start designing out what the steps in your user flow should look like; what’s should users do first, second, third because listen, the big problem with ecommerce is that everybody designed ecommerce sites to be slicky, right the idea was we want to get people shopping in their carts and checked out as quickly as possible and that’s terrific we’ve optimised around that. Well we’re losing a huge opportunity by not making our sites sticky. That it’s not just about optimising for checkout, it’s about optimising for engagement, right but how do we bring people back so we create a habit around coming to our site, not just when we need to check out and buy a product but for more frequent occurrences to other users day to day lie.
Kunle: Right, do you think that building a community around it could work cause I can’t remember the name of the, there’s a shop, is it Chubbys I think and what they’ve managed to do, Chubbys is, they’re an ecommerce business in the States is they’ve been able to create a culture around their shops.
Nir: Right so I think communities are a great source of what’s called rewards of the trad, it’s certainly something that can bring people back but again it has to actually provide value for the user, lots of (unclear 27:48:00) and for example Pinterest is a social network, right it’s not just about things it’s about also that the people who put those things and following the pacemakers and now that they’ve built such a strong community, now it’s easy for them to put in commerce I mean they’re going to make a lot of money on all the things that they’re going to sell because they have such a strong community but in the first community that people engage with for (unclear 28:09:05) and now they are putting in buying behaviours.
Kunle: That’s good stuff, fantastic. Ok before you say your goodbyes could you give our listeners one parting piece of advice in regards to consumer psychology and implementing a hook into commerce please?
Nir: Ok so, I think it’s all about understanding what the behaviour that you want to create a habit around is, you know a really fundamental interesting what that singular habit is and then figuring out the four steps of the hook, the trigger, the action, the reward and the investment and my book again just to wrap up my book is “Hooked – How to Build Habit Forming Products” and my website is www.Nirandfar.com
Kunle: Nir and far.com I would add it to the show notes, thank you so much for coming on the show Nir, it’s been an absolute pleasure sharing your insights.
Nir: My pleasure, thank you.
Kunle: Thanks bye bye.
Nir: Alright bye bye, thank you.
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