Ep. #118 - The Hook Model: The Secret Behind Habit-Forming Products

Speaker A: Have you ever wondered why some products capture public's imagination like the iPhone or Netflix, while others just fizzle out of public consciousness like Quibi. Remember Quibi? I'll not be surprised if you don't remember this product. Quibi was a short form streaming platform that lasted only four months. It had massive backing and insane marketing budget and they really wanted to cash in on the popularity of short form vertical videos on platforms like Instagram and TikTok. They thought there was a market for a short form streaming platform. They had these big celebrities and they had these full seasons and like I said, they had an insane marketing budget. But the app only lasted for four months. Now we'll talk about Quibi and why it failed in some other episode, but what I really want to focus on in this episode is the kind of products and services that we use that become a part of our daily routines. There is an underlying model that these companies use to create successful habit forming products. The main question is how do products like Instagram or Candy Crush or Netflix or the iPhone become a part of our daily routines? What is the secret to their success? Now the author Niryal attempts to answer all these questions in his highly successful book Hooked. Originally published in 2013, Hooked is quite arguably one of the best marketing books ever written. If you're a business owner or a marketer or a product designer then I would recommend you stop everything right now and pick up a copy of Hooked Now. At ah. The core of this book is the Hooked model, a four step process used by successful companies to create habit forming products. In the book, Niryal explains the Hook model and explores the subtle tactics used by companies like Apple, Facebook, Facebook, Pinterest and many more to link their products to their users daily routines and emotions. The book is filled with fascinating examples and anecdotes and Eyal does a great job revealing the secrets behind building better products and also explores the moral implications involved in creating highly addictive products. Now on this episode we'll deconstruct the Hook model which is used by all these habit forming products and I'll explain why it's so important that you follow the Hook model for your products or services as well. Stay tuned. Now let's first look at how the Hook Model works. This is the model that all successful habit forming products use to get you hooked to their product. So there are four steps involved in the Hook model. The steps are Trigger Action, Investment and Variable Reward. Now let's look at each of these steps. Step one is Trigger. Now uh, a trigger is Something that cues the user, uh, to take action. And triggers come in two forms. It can be an external trigger or an internal trigger. Now, external triggers tell you what to do next by placing information within your context or within your environment. Examples include emails, website, website links, or an app icon that you find on your smartphone. So if you see a headspace icon or a duolingo icon on your smartphone, that means you've been just queued by an external trigger. Another good example would be the Start free trial button that you find on Netflix, Amazon prime, or any other streaming platform like even Apple tv. These are just external triggers. And then you have internal triggers. Internal triggers occur when a product becomes closely associated with a thought, an emotion, or a pre existing routine. Some of the most powerful internal triggers are negative emotions like boredom, loneliness, frustration and indecisiveness. These negative emotions are harnessed by habit forming products like Instagram or Netflix when they connect all these negative emotions to your product. Think about the last time you were bored and you ended up watching the entire season of a show on Netflix. If that rings a bell, then you were just cued by an internal trigger. Now remember that new habits always begin with an external trigger, but are sustained for a long period of time through internal triggers. In other words, it's the internal triggers that keep users engaged or hooked. The second step in the hook model is action. Now, action is the behavior done in anticipation of a reward. A, uh, simple action like clicking on the get started button on Netflix enables you to create an account where you can check out the wide collection of movies and TV shows on the world's favorite streaming service. If you use an app like Headspace, then the reward can be the continued streak of the number of days that you meditated or the total minutes you have spent in meditation. Similarly, if you use Duolingo, you can continue your streak and at the same time see the progress that you've made in the language that you're learning. The third step is variable reward. Now, if you'd like your customers to use your product frequently, then it must deliver what it promises. In other words, you need to offer them a, uh, reward for their actions. That said, a predictable reward isn't enough to keep users hooked to the product. It needs to be unpredictable. In fact, studies show that the unpredictability involved in variable rewards serves as a much bigger motivation for customers to keep using the product. In other words, it's not the reward that keep users hooked to a particular product. It's the anticipation of a reward. So the bottom line is that the reward needs to have an element of unpredictability. Just imagine if Netflix had movies and shows from just one genre. What if they refused to add new movies to their collection? Or. Or what if they never had any original shows like Stranger Things, Narcos, or the Crown? Would you still continue your Netflix subscription every month? Seems very unlikely. Now the fourth and the final step in the Hook model is investment. Investment occurs when the user puts something into the product, such as time, effort or money. The more time and effort that users invest into a product, the more they value it. Now the investment phase in the Hook model increases the chances that the user will go through the hook cycle in the future. Inviting friends to use the product, stating your preferences, and learning new features are all investments that users make in a product to improve their overall experience. There's something called the IKEA Effect which we'll discuss in detail shortly, which is a great example of the investment phase. Another example is the My List feature on Netflix, which allows you to create a watch list of movies and TV shows that you can watch in the future. Okay, so now you know how the Hook model works. Next we'll dive into the marketing insights you can gain from habit forming products that utilize the Hook model. We'll also explore the ethical considerations of applying the Hook model in your marketing strategies when we discuss something called the Manipulation metrics. So insight number one is all habit forming products use the Hook model. In his book, Nir Eyal writes that the products and services we use habitually alter our everyday behavior just as their designers intended. Now if you look at companies behind habit forming products like Facebook, Pinterest, YouTube, iPhone and many others, you'll see that they use the Hook model to stay relevant in users minds. These companies attach their products to internal triggers that we just discussed. Now throughout the book niryal provides different examples of habit forming products and services that change user behavior and create unprompted user engagement. These companies have mastered habit forming product design. Let's take the example of Google. Google search engine is perhaps the best example of a habit forming product. Google still commands a global market share of over 90%. Why is it that more Google users haven't migrated to rival search engines like Bing or DuckDuckGo? Now if you look at Bing they had several updates. Uh, this year it was one of the first search engines to introduce ChatGPT like features because Microsoft also owns a stake in ChatGPT. Now despite doing all this and making so many improvements to their search engine, Bing was not able to attract any New users and their market share in fact don't dropped considerably in the past few months. And if you look at a privacy focused search engine like DuckDuckGo, they have also barely moved the needle. So why is it that Google users don't typically use other search engines? The answer is simple. Because Google is a habit forming product and habits keep users loyal. If a user is familiar with Google's interface, switching to Bing would require a lot of cognitive effort. Even if Bing's technology and features were superior like they were in the case when they introduced ChatGPT like features, adapting to its interface would take time for new users who have just migrated from Google. As a result, Google has such a stranglehold on the search engine market and Bing continues to be the subject of widespread Internet memes. So in order to create a product that's used frequently by your customers, you need to master the art of habit forming product design, which incorporates the hook model. Now the second marketing insight is that habits are good for business. Niryal writes that user habits are a competitive advantage. Products that change customer routines are, uh, less susceptible to attacks from other companies. So habits are great for the bottom line of companies that are able to harness the power of habits in an effective way. In his book Before Diving into the Mechanics of Habit Formation, Eyal helps us understand the importance and and benefits of habits from a business perspective. So here are some ways in which habits are good for business. Number one Habits increase customer lifetime value, or cltv. Now, CLTV is a metric that indicates the total worth of a customer to a business over the period of their relationship. In other words, CLTV is the amount of money you make from a customer before he or she switches to a competitor. Now, habits increase how long and how frequently customers use a product, resulting in a higher cltv. Second, habits provide pricing flexibility. Now, habits give companies greater flexibility to increase their prices. Nirayal provides the examples of Candy Crush and Evernote to illustrate this point. Both these apps follow a freemium model. In the case of Candy Crush, some of the users who've been playing the mobile game for free end up being paid customers and netting the company millions of dollars. Similarly, loyal Evernote users typically upgrade to the paid version to use advanced features like calendar integration, increased note size, and more. Third habits supercharge growth. Users who are hooked to a particular product are more likely to tell their friends about it. In other words, they become brand evangelists, bringing in new users at no cost. To elaborate on this, Niryal provides the example of Facebook, which beat established social media platforms like MySpace and Friendster because of higher user engagement despite being late to the social networking game. And number four habits sharpen the competitive edge. As the saying goes, old habits die hard. So for new entrants to stand a chance against existing solutions, they need to build products that are not just marginally better, but but substantially better and superior in every way. Which is why user habits can be such a potent competitive advantage. When you combine these four benefits, it's easy to see why habits are good for business and why it's worth investing your time and resources to build habit forming products. The third marketing insight is that all successful companies have uh, a deep understanding of their users triggers. Niryal writes that the ultimate goal of a habit forming product is to solve the user's pain by creating an association so that the user identifies the company's product or service as the source of relief. Now let's take the example of Instagram. Instagram's parent company Meta, is one of the most successful companies that has a deep understanding of their users internal and external triggers. Now, most users who are habitually using Instagram start using it because of an external trigger. Maybe they saw their friends using it, or maybe they saw mentions of it in the media, or you had an influencer or a blogger who recommended the service. These are all external triggers. But once you start using it and you become a repeat user, Instagram starts forming strong internal triggers with the users. Maybe boredom is an emotion that is tied to Instagram. Every time you feel bored, you feel like tapping the Instagram icon on your phone and you want to see what your friends or the celebrities that you follow are up to. But an even stronger internal trigger, in my opinion, is the fear of missing out, or FOMO as it's called. Now the fear of missing out usually leads to stress, which is a strong internal trigger. It's this pang of stress that keeps bringing users back to Instagram to share their special moments with their friends or their audience. So in order to create a, uh, habit forming product, you need to understand which user emotions are tied to internal triggers and know exactly how to leverage external triggers to drive the user to action. The fourth marketing insight is the importance of heuristics and product design. Nirayal writes that product designers can utilize many of the hundreds of heuristics to increase the likelihood of their desired action. Heuristics are nothing but mental shortcuts that we take to make quick decisions and form opinions. Now companies typically use hundreds of heuristics out there to increase engagement on their platform. But Nir Eal in his book, shares four of the most important heuristics. And these are the four important heuristics that you should know. The first one is the scarcity heuristic. In this scenario, the appearance of scarcity affects the perceived value of a product or service. Scarcity, or to be more precise, perceived scarcity of a product may discretely signal the popularity of the product. It may also trigger the dreaded FOMO feeling or the fear of missing out. Now, you'll notice that brands use scarcity effect all the time. Amazon is perhaps the best example of a company that uses scarcity heuristic to good effect. How often have you searched for something you wanted to buy on Amazon only to find that there are only a few stocks remaining? That must have happened several times with you, and that may have triggered, uh, a sense of urgency in you to, to order the product as soon as possible. In this case, Amazon is using the scarcity heuristic to influence your buying behavior. Next, we have the framing heuristic. In this scenario, context shapes the perceived value of a product or service. To explain this, you have to look at the Joshua Bell experiment. Joshua Bell is a world famous violinist, and typically his concert tickets sell for hundreds of dollars. Venues like Kennedy center and Carnegie hall are, uh, packed with all his fans. But when Joshua played his violin for free in a busy subway station, very few people stopped to listen to his music. You can actually watch this video on YouTube. You just need to type Joshua Bell Metro experiment to see what takes place. So here's a guy who's a famous musician and his tickets sell for hundreds of dollars in all the popular venues. But when he did this experiment, when he played his violin in a busy metro station, very few people stopped to listen. So this perfectly explains the framing heuristic. It's actually framing heuristic in action. Now, this heuristic doesn't just influence our behavior, but it also changes how our brain perceives pleasure. The next heuristic is the anchoring heuristic. In this scenario, people often anchor to one piece of information when making a decision. Now, if you've ever walked into a clothing store with a signage of, let's say up to 50% off, or summer sale or Black Friday sale or something like buy one, get one free, you've been exposed to the anchoring heuristic. Now, in this scenario, even if we stumble upon better, less expensive products which are not discounted, we may end up buying products which are on sale because we've been Influenced by the anchor of 50% off or buy one and get one free and the next heuristic is the endowed progress heuristic. This is a phenomenon that increases motivation as people believe they are nearing a goal. An example of this heuristic in action is how LinkedIn prompts its users to share more information about themselves with the profile Strength meter. The more information and content you add to your profile, the more strength your LinkedIn profile gains. The ultimate goal is to reach the LinkedIn All Star status. You may have also used an app like Duolingo where you see the progress that you're making in the language that you're learning and there's always a goal attached to each and every step. Similarly with Headspace, when you take up a, uh, meditation course, there are so many levels involved and you can see the progress you're making with each meditation course you sign up for. So these are the four most important heuristics you need to remember if you're in marketing. Now, the fifth marketing insight is that companies use gamification with varying success. Niryal writes that gamification is not a one size fits all solution for driving user engagement. In other words, gamification is not going to work for every company out there. But some companies that do adopt gamification tend to do really well. Now, gamification is the use of game like elements in non game environments. The use of points, badges and leaderboards are all examples of companies using gamification to increase user engagement. We've already spoken about Duolingo and Headspace. They adopt gamification elements in their app. But like I said, gamification is not a magical solution that will automatically drive user engagement. So it's not a one size fits all. Like Nirayal says, it's not something that every company out there should adopt. When it comes to successful implementation of gamification success, some companies do it better than others. If done well, gamification can enhance the features of a product if it's already delivering value to its users. On the other hand, if a product fails to hook users at the basic level, no amount of gamification can save the product from impending doom. So if there's a mismatch between the customer problem and the company's assumed solution, adding game mechanics or gamification to the product will not make it instantly more attractive. The sixth marketing insight is the IKEA effect. So when I was explaining the hook model, I did mention that, uh, the IKEA effect is a good example of the investment phase of the Hook Model Nirayal writes that businesses that leverage user effort confer higher value to their products simply because their users have put work into them. So let's take the example of Ikea, which is the world's largest furniture retailer and the unique approach the company follows to sell its furniture products. In addition to selling pre assembled furniture, IKEA puts its customers to work by making them assemble the furniture themselves. Now they do this not just because it decreases labor costs or optimizes distribution efficiency. There is a hidden benefit to making people assemble their own furniture. Now when customers assemble their own furniture, they develop an irrational love for the furniture they've built, even if it looks like crap to other people. So because they've built the furniture themselves, they assign a greater value to it. Now this cognitive bias is called the IKEA effect. Businesses that include do it yourself elements in their products can place a higher value to them because of the investment users have made in the products through their labor. Now it's not just IKEA which is doing this. You'll also find uh, SaaS, companies like 37, signals I and Vistia which have employed IKEA effect in their onboarding process. This is just to increase the user's commitment in their product and to increase the value of the product in their customers minds. Now the seventh and the final marketing insight is all about understanding the manipulation metrics. Nirayal writes that even though the world is becoming a potentially more addictive place, most people have the ability to to self regulate their behaviors. Now the Hook model can be used for good. It can be used to build remarkable products that seamlessly integrate into our daily routines. But as you may have rightly guessed by now, it can also be a recipe for manipulation. Since it involves changing people's behaviors, you should use it responsibly. And for this, Nir Eyal proposes the Manipulation matrix as a guide. Now, Manipulation Matrix is a decision support tool that entrepreneurs can use long before they launch their product. In order to use the manipulation matrix, you need to ask yourself two questions. Number one, would I use the product myself? Number two, will the product help users materially improve their lives? Your answer to these questions will determine where you fall on the manipulation matrix. Now there are four types of creators who fall in the manipulation matrix. And by answering these two questions, you, you can find out which creator you're more aligned with. Number one is the facilitator. If your answer to both these questions is yes, wherein you say that you would use the product yourself and it'll materially improve the lives of your customers then that means your product is facilitating a healthy habit. Facilitators have the highest chance of success because they truly understand the needs of their users. The second creator is the peddler. If you believe that your product can materially improve your customers lives but you have no intention of personally using it yourself, then you fall into this quadrant. While there's nothing wrong in launching a product, when you're in this quadrant the odds of success are very low because you are designing products for a user you don't know extremely well. The third type of creator is the entertainer. Entertainers use their product but don't believe it can enhance users lives. If your product falls into this category then it can indeed be successful but its success will be short lived. Games like FarmVille and Angry Birds are uh, classic examples of products that fit into this category. And the fourth type of creator is the dealer. As you may have guessed, the dealer is the worst category to be in. They neither believe in their product nor use it themselves. If your product falls in this category, you're simply exploiting users to earn a quick buck. So these are the four quadrants in the manipulation matrix. If you're creating a habit forming product, it's important to assess the morality behind the techniques you'll use to hook users. The manipulation matrix helps you determine which of the four categories your product fits into. It helps you decide whether it's the right move to push forward with the launch or hold back and make changes to the product before it's finally released to the general public. The manipulation matrix is simply a reminder to creators and innovators to to consider the implications of the products they're building. So that's the hook model in a nutshell. That's the secret behind all these habit forming products that we use. And if you're in the process of launching your own product or if you want to market it more effectively, then I would highly recommend you pick a copy of the book Hooked by Nirayal and you'll learn more about this model. And there's so many examples that illustrate the effectiveness of this model. Now I have a homework for you. You go back and think about the products that you use and think about all the external and the internal triggers that they're using in order to get you hooked. And also think about the manipulation matrix. See if it's facilitating a good habit or a bad habit. Do this for all the products that keep you hooked. And when you use these products you'll see the hook model in action and you can use it more effectively when you're launching your own product. That wraps up this episode. Thank you so much for tuning in. I hope you found it useful. And I'll be back very soon with a new episode.