下载掌阅APP，畅读海量书库
立即打开
When I run, I zone out. I don’t think about what my body is doing and my mind usually wanders elsewhere. I find it relaxing and refreshing, and run about three mornings each week. Recently, I needed to take an overseas client call during my usual morning run time. “No biggie,” I thought. “I can run in the evening instead.” However, the time shift created some peculiar behaviors that night.
I left the house for my run at dusk and as I was about to pass a woman taking out her trash, she made eye contact and smiled. I politely saluted her with “Good morning!” and then caught my mistake: “I mean, good evening! Sorry!” I corrected myself, realizing I was about ten hours off. She furrowed her brow and cracked a nervous smile.
Slightly embarrassed, I noted how my mind had been oblivious to the time of day. I chided myself not to do it again, but within a few minutes I passed another runner and again—as if possessed—I blurted out, “Good morning!” What was going on?
Back home, during my normal post-run shower, my mind began to wander again as it often does when I bathe. My brain’s autopilot switch turned on and I proceeded with my daily routine, unaware of my actions.
It wasn’t until I felt the nick of the razor cutting my face that I realized I had lathered up and started shaving. Although it is something I do every morning, shaving was painfully unnecessary in the evening. And yet I’d done it anyway, unknowingly.
The evening version of my morning run had triggered a behavioral script that instructed my body to carry out my usual run-related activities—all without mindful awareness. Such is the nature of ingrained habits—behaviors done with little or no conscious thought—which, by some estimates, guide nearly half of our daily actions. [1]
Habits are one of the ways the brain learns complex behaviors. Neuroscientists believe habits give us the ability to focus our attention on other things by storing automatic responses in the basal ganglia, an area of the brain associated with involuntary actions. [2]
Habits form when the brain takes a shortcut and stops actively deliberating over what to do next. [3] The brain quickly learns to codify behaviors that provide a solution to whatever situation it encounters.
For example, nail biting is a common behavior that occurs with little or no conscious thought. Initially, the biter might start chomping on her fingernail for a reason—to remove an unsightly hangnail, for example. However, when the behavior occurs for no conscious purpose—simply as an automatic response to a cue—the habit is in control. For many persistent nail-biters, the unconscious trigger is the unpleasant feeling of stress. The more the biter associates the act of nail chomping with the temporary relief it provides, the harder it becomes to change the conditioned response.
Like nail biting, many of our daily decisions are made simply because that was the way we have found resolution in the past. The brain automatically deduces that if the decision was a good one yesterday, then it is a safe bet again today and the action becomes a routine.
On my run my brain had associated making eye contact with another person during my run with the standard “Good morning!” greeting; thus I automatically uttered these words no matter how inappropriately timed.
If our programmed behaviors are so influential in guiding our everyday actions, surely harnessing the same power of habits can be a boon for industry. Indeed, for those able to shape them in an effective way, habits can be very good for the bottom line.
Habit-forming products change user behavior and create unprompted user engagement. The aim is to influence customers to use your product on their own, again and again, without relying on overt calls to action such as ads or promotions. Once a habit is formed, the user is automatically triggered to use the product during routine events such as wanting to kill time while waiting in line.
However, the framework and practices explored in this book are not “one size fits all” and do not apply to every business or industry. Entrepreneurs should evaluate how user habits impact their particular business model and goals. While the viability of some products depends on habit-formation to thrive, that is not always the case.
For example, companies selling infrequently bought or used products or services do not require habitual users—at least, not in the sense of everyday engagement. Life insurance companies, for instance, leverage salespeople, advertising, and word-of-mouth referrals and recommendations to prompt consumers to buy policies. Once the policy is bought, there is nothing more the customer needs to do.
In this book I refer to products in the context of businesses that require ongoing, unprompted user engagement and therefore need to build user habits. I exclude companies that compel customers to take action through other means.
Before diving into the mechanics of how habits are made, we must first understand their general importance and competitive benefits for businesses. Habit formation is good for business in several ways.
MBAs are taught that a business is worth the sum of its future profits. This benchmark is how investors calculate the fair price of a company’s shares.
CEOs and their management teams are evaluated by their ability to increase the value of their stocks—and therefore care deeply about the ability of their companies to generate free cash flow. Management’s job, in the eyes of shareholders, is to implement strategies to grow future profits by increasing revenues or decreasing expenses.
Fostering consumer habits is an effective way to increase the value of a company by driving higher customer lifetime value (CLTV): the amount of money made from a customer before that person switches to a competitor, stops using the product, or dies. User habits increase how long and how frequently customers use a product, resulting in higher CLTV.
Some products have a very high CLTV. For example, credit card customers tend to stay loyal for a very long time and are worth a bundle. Hence, credit card companies are willing to spend a considerable amount of money acquiring new customers. This explains why you receive so many promotional offers, ranging from free gifts to airline bonus miles, to entice you to add another card or upgrade your current one. Your potential CLTV justifies a credit card company’s marketing investment.
Renowned investor and Berkshire Hathaway CEO Warren Buffett once said, “You can determine the strength of a business over time by the amount of agony they go through in raising prices.” [4] Buffett and his partner, Charlie Munger, realized that as customers form routines around a product, they come to depend upon it and become less sensitive to price. The duo have pointed to consumer psychology as the rationale behind their famed investments in companies like See’s Candies and Coca-Cola. [5] Buffett and Munger understand that habits give companies greater flexibility to increase prices.
For example, in the free-to-play video game business, it is standard practice for game developers to delay asking users to pay money until they have played consistently and habitually. Once the compulsion to play is in place and the desire to progress in the game increases, converting users into paying customers is much easier. The real money lies in selling virtual items, extra lives, and special powers.
As of December 2013, more than 500 million people have downloaded Candy Crush Saga , a game played mostly on mobile devices. The game’s “freemium” model converts some of those users into paying customers, netting the game’s maker nearly $1 million per day. [6]
Users who continuously find value in a product are more likely to tell their friends about it. Frequent usage creates more opportunities to encourage people to invite their friends, broadcast content, and share through word of mouth. Hooked users become brand evangelists—megaphones for your company, bringing in new users at little or no cost.
Products with higher user engagement also have the potential to grow faster than their rivals. Case in point: Facebook leapfrogged its competitors, including MySpace and Friendster, even though it was relatively late to the social networking party. Although its competitors both had healthy growth rates and millions of users by the time Mark Zuckerberg’s fledgling site launched beyond the closed doors of academia, his company came to dominate the industry.
Facebook’s success was, in part, a result of what I call the more is more principle—more frequent usage drives more viral growth. As David Skok, tech entrepreneur turned venture capitalist, points out, “The most important factor to increasing growth is... Viral Cycle Time.” [7] Viral Cycle Time is the amount of time it takes a user to invite another user, and it can have a massive impact. “For example, after 20 days with a cycle time of two days, you will have 20,470 users,” Skok writes. “But if you halved that cycle time to one day, you would have over 20 million users! It is logical that it would be better to have more cycles occur, but it is less obvious just how much better.”
Having a greater proportion of users daily returning to a service dramatically decreases Viral Cycle Time for two reasons: First, daily users initiate loops more often (think tagging a friend in a Facebook photo); second, more daily active users means more people to respond and react to each invitation. The cycle not only perpetuates the process—with higher and higher user engagement, it accelerates it.
User habits are a competitive advantage. Products that change customer routines are less susceptible to attacks from other companies.
Many entrepreneurs fall into the trap of building products that are only marginally better than existing solutions, hoping their innovation will be good enough to woo customers away from existing products. But when it comes to shaking consumers’ old habits, these naive entrepreneurs often find that better products don’t always win—especially if a large number of users have already adopted a competing product.
A classic paper by John Gourville, a professor of marketing at Harvard Business School, stipulates that “many innovations fail because consumers irrationally overvalue the old while companies irrationally overvalue the new.” [8]
Gourville claims that for new entrants to stand a chance, they can’t just be better, they must be nine times better. Why such a high bar? Because old habits die hard and new products or services need to offer dramatic improvements to shake users out of old routines. Gourville writes that products that require a high degree of behavior change are doomed to fail even if the benefits of using the new product are clear and substantial.
For example, the technology I am using to write this book is inferior to existing alternatives in many ways. I’m referring to the QWERTY keyboard which was first developed in the 1870s for the now-ancient typewriter. QWERTY was designed with commonly used characters spaced far apart. This layout prevented typists from jamming the metal type bars of early machines. [9] This physical limitation is an anachronism in the digital age, yet QWERTY keyboards remain the standard despite the invention of far better layouts. Professor August Dvorak’s keyboard design, for example, placed vowels in the center row, increasing typing speed and accuracy. Though patented in 1932, the Dvorak Simplified Keyboard was written off. QWERTY survives due to the high costs of changing user behavior. When first introduced to the keyboard, we use the hunt-and-peck method. After months of practice, we instinctively learn to activate all our fingers in response to our thoughts with little-to-no conscious effort, and the words begin to flow effortlessly from mind to screen. But switching to an unfamiliar keyboard—even if more efficient—would force us to relearn how to type. Fat chance!
As we will learn in chapter 5, users also increase their dependency on habit-forming products by storing value in them—further reducing the likelihood of switching to an alternative. For example, every e-mail sent and received using Google’s Gmail is stored indefinitely, providing users with a lasting repository of past conversations. New followers on Twitter increase users’ clout and amplify their ability to transmit messages to their communities. Memories and experiences captured on Instagram are added to one’s digital scrapbook. Switching to a new e-mail service, social network, or photo-sharing app becomes more difficult the more people use them. The nontransferable value created and stored inside these services discourages users from leaving.
Ultimately, user habits increase a business’s return on investment. Higher customer lifetime value, greater pricing flexibility, supercharged growth, and a sharpened competitive edge together equal a more powerful bang for the company’s buck.