Nir Eyal: Habit Design Masterclass (Trigger, Action, Variable Reward & Investment), The Carrot Is The Stick & User Behavior Hooks - E293

· Creators,Singapore,Start-up,Southeast Asia

“The carrot is the stick. The brain gets us to do anything and everything for one reason, and that is to escape discomfort. Everything you do, every product you buy, and every action you take is about the desire to escape discomfort. Even the pursuit of pleasurable emotions, wanting, lusting, craving, and desiring are uncomfortable. We have to realize that from that perspective, it doesn't help us to think about customer needs in terms of wanting to feel good. It's much better to think about the pain points.”- Nir Eyal

"An internal trigger is an uncomfortable emotional state that we seek to escape, like boredom, loneliness, fatigue, uncertainty, stress, and anxiety. When the user feels that internal trigger, they look for relief with our product or service. It is always a negative emotion. The only reason why people use a product or service is to manipulate their mood. It's to feel something different. As a product designer, entrepreneur, or marketer, you have to understand the feeling that your customer is trying to escape before focusing on the product feature, which is less important." - Nir Eyal

“The brand is not what keeps people coming back. What Shein has is economies of scale. They can make stuff dirt cheap. Walmart used to be all about cheap products, then Amazon came along and it was also doing the same thing. After that, Shein came along, and there will be something after Shein that makes stuff super cheap. Competing on price alone can be a winning strategy, but you're going to have a lot of knives on your back. You have to be careful because somebody's going to try and copy that very quickly, especially since we know people at manufacturers in China are emulating and copying these types of strategies. I would take out the Hook model and ask myself where it is the weakest. It is weakest in the investment phase. This can be fixed by personalizing the product based on customer preferences.” - Nir Eyal

In this insightful discussion between Jeremy Au, a Venture Capitalist, and Nir Eyal, an expert on habit formation, the focus is on the Hook Model and its relevance in different industries. The conversation delves into the trigger, action, variable reward, and investment phases that create habit-forming products. The key takeaway is that by understanding and implementing the Hook Model, businesses can cultivate user engagement and loyalty. The discussion highlights real-world examples, including edtech and health tech, where the model is being successfully applied. It also emphasizes the importance of the investment phase, often overlooked, as users' continued investment in a product enhances its value over time.

Key Topics Discussed:

  • The four phases of the Hook Model: trigger, action, variable reward, and investment
  • The importance of understanding user psychology and internal triggers
  • Examples of habit-forming products in industries like edtech and health tech
  • The role of personalization and customization in creating stickiness
  • The potential of future developments in e-commerce and personalized experiences
  • The need for businesses to go beyond price competition and focus on creating habits

This engaging discussion provides valuable insights into how businesses can leverage the Hook Model to create engaging products and services that build long-term customer relationships.

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Jeremy Au: (01:51)

Hey, I'm really excited about this, coming back again, but starting the first of our monthly installment to discuss all things about habit and all these things about products and all these other amazing things. Please introduce yourself.

Nir Eyal: (02:05)

Hi, my name is Nir Eyal and I'm honored, actually, to be back. It's my second appearance. I'm so happy that you invited me back. Apparently, I did okay the first time, so thank you for bringing me back, Jeremy. I'm very, very honored to be back and so, my name is Nir Eyal and I am the author of two books Hooked: How to Build Habit Forming Products and Indistractable: How to Control Your Attention and Choose Your Life.

I've started three companies now and had a few successful exits, and a few acquihires, and now I'm onto sharing what I've learned over the years through the books I write and through the consulting. I do invest. I've invested in 36 companies so far, six unicorns, and looking for, looking for more constantly.

I live in Singapore. I've lived here for the past three and a half years, and love it, and my consulting work focuses around what's called behavioral design. So I help companies build the kind of products and services that they use because they want to, not because they have to. So what I did was to study over the past 15 years now, how companies get us hooked. How do they build the kind of products and services that keep people coming back again and again without spammy advertising or expensive messaging, the kind of products and services like TikTok or WhatsApp or Slack or Instagram? These products are designed to bring you back, and of course the reason I do this work is not for them, right?

Gaming companies, and social media companies, know these techniques. They don't need to read my book. I wrote Hooked to democratize these techniques so that the rest of us so that everybody else out there building products and services that can improve people's lives can use this for good. So I tend to work with people in healthtech, getting people to adhere to some kind of healthcare regimen or, FitBot is a good example of an app that's used the hook model to get people hooked onto exercise.

Edtech, that's a big category that I work with. Companies like Duolingo use the hook model to get people hooked to learning new languages, all sorts of products and services, SaaS products, enterprise, consumer web, any kind of product that needs repeat engagement. That's kind of my specialty and forte.

Jeremy Au: (04:04)

Amazing. And, you know, the reason why we came back is because previously, we had such a wonderful conversation about social media. We talked about TikTok and so, so forth, and turns out you also became very popular on some of our BRAVE Southeast Asia TikTok clips as well. So here we are, talking about this and what was interesting is that, you know, I've read your book and I remember seeing it back in a bookstore in New York and I was like, wow, this is really interesting and browsing those years and years ago, and one of the things that I think folks, including myself, would love to have is that little bit of a masterclass about what the Hooked model is.

And I understand and I've seen you present about trigger, action, variable, reward, investment. You know the four stages about how it all works together and would love for you just kind of share about how that, first of all, that overall cycle came into mind, those four stages, before we dive into each one of them specifically.

Nir Eyal: (04:55)

Sure. Yeah. So where, what was the genesis for the book? So I was working in the gaming and advertising space. My last company was at the intersection of those two industries, and these are two industries that are dependent on influencing your behavior, right? Advertisers don't spend all that money for their health.

Gaming companies are masters of designing experiences to get their users to do what they've designed for them to do. So I had this front row seat at the intersection of these two industries, and when my last company was acquired, I had some extra time on my hands and I thought I was going to start another company, but I knew that habits would be increasingly important. Why did I know this? This was back in 2012, so remember the app store was only four years old at that time, and I could see that there was a trend that was only going in one direction, and that was that as screens were shrinking, as we went from desktop screens to laptop screens, to mobile device screens, and now wearable device screens, and now even more recently to auditory devices like Amazon Alexa, the Microsoft version, Cortana, I think it's called, these auditory type devices.

I think we're going to see, you know, very quickly integrate LLMs into these auditory type devices where the screen completely disappears. And as that happens, as the screen real estate shrank, habits became more important. Why do I say that? Because if you are not on someone's home screen, take on your phone, for example, if you're not on someone's phone, on their home screen, when they initially open that app, if they don't have a habit of using your product and they don't see you, you might as well not even exist because the amount of room we have for external triggers the amount of real estate that is available to trigger people with external stimulus shrank along with the screen until it finally disappeared.

So it becomes increasingly important. The smaller the interface, habits become increasingly important. So I knew I wanted to build product that involved habits, and I looked around. I said, where's the book on how to build habit forming products? And there was no such book. So before I dove into building this company, I wanted to understand for myself what were the key traits of a habit-forming product. And so, I wanted to understand from my own clients. So I interviewed my former clients,, companies like Zynga, and many different gaming and advertising companies, and I kind of wanted to distill down their secrets so that I could use them and the rest of us could use them.

And then I started blogging about this just on my own site. Back then, I was using Blogger. This was before Medium and Substack or any of these sites we have today. I just started blogging about it for myself. And then I started getting a few subscribers and then around 5,000 subscribers, I got an email from one of my professors at Stanford that said, Hey, I really like your stuff. I think it's an interesting model. What about teaching a class together? And he gave me kind of carte blanche to create this class, Dr. Baba Shiv at Stanford. And that later turned into a class that I taught at the Hassell Planner Institute of Design. And so it kind of, my next career, I didn't know you could do this for a living, but my next career kind of became the study of behavior and how behavior can be designed and how we can break the behaviors we don't like. So that's kind of the short story of how I got here.

Jeremy Au: (08:04)

Amazing. And so you've decided on four major stages, right? Trigger, action, variable reward and investment. Could you kind of walk us through, maybe before we go into each specific one, how it flows together?

Nir Eyal: (08:17)

Sure. Absolutely. So the hardest part of writing this book, the book took me five years to write because the hardest part was figuring out not what to include, but what to exclude. So, by the way, that is great design in a nutshell. It always is, right? It's about what you don't include. It's really easy to be, Hey, do all this stuff. But as an entrepreneur myself, you know, I've, I've started a few companies and I know how busy you can be and how difficult it is when someone just pukes out advice at you without telling you, wait, what's most important? What's second most important? What's third most important? Not everything could be a priority. A priority is one thing at a time. So the hardest part around writing my book was to make a book that was practical enough to be useful for entrepreneurs without being overly simplistic. And so the hook model incorporates consumer psychology and behavioral design to give product makers anyone who touches product. So marketing, of course UX interaction design, experience design, the CEO anyone who touches product insights into how to build a kind of product that people come back to time and time again, how to get people hooked to your product by building a habit. And so, what I found was when I looked at companies that were engaging, when you think about products like Facebook and TikTok and Instagram and WhatsApp and Slack and Snapchat, enterprise consumer web doesn't matter.

We see the same pattern again and again, and this pattern is called the Hook Model. The Hook Model is an experience designed to connect the user's problem with your product, with enough frequency to form a habit. I'll say it again. It's an experience designed to connect the user's problem with your product, with enough frequency to form a habit. And it's through successive cycles, through these hooks that are preferences are shaped, that our tastes are formed, and that these habits take hold. So these four parts of the hook model, we can go through them in greater depth. You said them earlier. Trigger action, reward, and investment. This is kind of the blueprint for a useful tool that can be used into places in your startup journey.

The best place to use the hook model is in the early days. Ideally before you commit any code, before you hire any designers, when you have this idea for a product and your product needs repeat engagement. By the way, not every business model needs repeat engagement, okay? Lots of businesses are sales driven. We see this a lot in enterprise products. If you think about cybersecurity, okay, you don't use cybersecurity every day you buy it. It's not implemented unless something terrible happens. Same with car insurance. You don't use car insurance every day. You don't have to do anything with car insurance. You buy it and then it's there in case, God forbid, something terrible happens.

That's a sales-driven model. When it comes to a term we hear a lot these days, product-led growth, a product-led company needs to be the kind of company that people use the product, the product drives the sales. And you can only do that if you have the kind of product that people use enough to want to pay you, right? So when you look at, when you think about SaaS products, if you don't use the SaaS product, if you can't get your users hooked to your product, you're in trouble, right? Cause they're going to churn. They're going to stop paying. So those are the kind of products that need this type of model. And so, the way it works well that way, I was starting to say how when you should use the model, you can use it in the very, very early days, right?

When you first have that idea, you can look at the hook model and say, okay, how do we build this hook into our user experience? Or where it's also very helpful is if you already have a product in market. And you know, people like the product, but not enough people you think are getting hooked to it. Maybe you have very, very few users. You know, you're talking single digit percentage of users who use it habitually. So what you would do is you say to yourself, huh, it looks like people start using this product, right? They want to use our product, but they don't stick around. Why aren't they sticking around? So my nickname is The Plumber. Why The Plumber? Because the plumber comes in and stops up leaks. And what many companies, most companies have this phase of creating leaky bucket businesses, where at some point in the product life cycle, in the early days, hopefully, so it doesn't kill you, you start investing in user growth, and people come in, but they all leak out. And this is very common. I get calls from VCs every single week telling me, Hey, we invested in this company. The growth metrics were amazing. We put money in and people don't stick around. Why not? What's going on? Come over here and tell us what's going, on what's happening?

So what do we do? We take out the hook model and we can use it as a diagnostic tool. We can look at it and say, okay. Do we have the right triggers? Is the action easy enough? Can it be made simpler? Do we have variable rewards in place and is it the right type of variable rewards? And then finally, do we have the investment phase that increases the value of the product with each successive use?

So then it becomes a diagnostic tool to come up with hypothesis, and then we can test and see can we increase the percentage of habituated users.

Jeremy Au: (13:04)

Right. And let's talk about the first stage, right, the trigger. So it's a start, right? How does it start? Why is it important from your perspective?

Nir Eyal: (13:13)

Yeah, absolutely. So there's two kinds of triggers. The first kind of trigger is one everybody will be familiar with. These are called external triggers. External triggers are things in our outside environment that tell us what to do next. These are all the pings, the dings, the rings, everything in our outside environment, any call to action that tells you what to do next with some piece of information in your outside environment.

Okay? Very common. We all use them every day. We design them as product designers, right? We know all about external triggers, but what people don't think about enough and what is absolutely critical for long-term habit change is an internal trigger. What is an internal trigger? An internal trigger is an uncomfortable emotional state that we seek to escape. Boredom, loneliness, fatigue, uncertainty, stress, anxiety. These are these internal triggers that when the user feels that internal trigger, they look for relief with our product or service. So that's again, back to connecting the user's problem with your product. With enough frequency to form a habit. If you don't know your user's internal trigger, which is always a negative emotion. This is super important. Many people don't realize this. There's only one reason and one reason only that people will use any product or service. Any product. I don't care if what industry, I don't care if it's enterprise or consumer web. Every product is used for only one reason, and that is to manipulate your mood. That's why you use every single product. It's to feel something different. And so you as the product designer, as the entrepreneur, as the marketer, you have to understand what is the feeling that your customer is trying to escape, not what feature. That's much less important. That'll come, we'll get there. But you first have to start with what is the uncomfortable emotional itch that your customer is trying to escape? That's the internal trigger. And if you don't know that, and if everybody on your team doesn't know what that itch is, you're just getting lucky. You're throwing darts. You might get lucky, but the chances are much, much higher that you will find success if you and your teammates can articulate what is the psychological itch that your product is addressing?

Jeremy Au: (15:20)

So, I think the external feels the most straightforward, right? It's like you said, the notification bell. That's, I think the internal one is the one that I think is, you could say novel, but also I think people have that feeling which is like, oh, our product is to provide utilities to be helpful, but now you're kind of like saying, tap into the dark side. Tap into the negative emotionality that is there. Could you give some examples of what that kind of negative emotion or internal mood requirement

Nir Eyal: (15:45)

I get that question a lot of, well, you know, why is this so negative, right? Why can't we cater to positive emotions? Well, because it's two sides of the same coin that every desirous response, wanting, craving, lusting after something is itself psychologically destabilizing. We now know many people know about this idea of carrots and sticks. That's the source of human motivation, right? The desire for pleasure and the avoidance of pain. Turns out that's not true. That's not true. Neurologically speaking, that is not true. You, you, you saw the Matrix, right?

Jeremy Au: (16:16)

You mean Washington Matrix movie?

Nir Eyal: (16:18)

You watched the Matrix movie right?

Jeremy Au: (16:19)

Yeah, yeah, yeah, yeah.

Nir Eyal: (16:20)

You know that scene where Neo goes to that room and there's that kid who's holding a spoon, right? And the spoon begins to bend. And what does he realize? That there is no spoon. So now I'm going to, I'm going to blow your mind for the listeners, I'm going to give you a "there is no spoon" moment.

The carrot is the stick. The carrot is the stick that the way the brain gets us to do anything and everything is for one reason and one reason only, and that is to escape discomfort. Everything you do, every product you buy, every action you take, everything you do is about a desire to escape discomfort, even the pursuit of pleasurable emotions, wanting, lusting, craving, desire are themselves uncomfortable. The carrot is the stick, so we have to realize that from that perspective, it doesn't help us to think about customer needs in terms of wanting to feel good. It's much better to think about the pain points. When do they feel bad? Why? Because when our users feel fine, you have to leave them alone. Stop bothering them. I'll give you a perfect example to illustrate the point. I do a lot of public speaking and I was on a flight recently and, across the aisle from me, there was a gentleman who had, by the way, this was not on Singapore Airlines. This is another airline. Okay? So I'm not imp implicating Singapore, a much, much worse airline. There was a guy in the aisle seat with his blanket pulled up to his neck and he was clearly asleep. Totally passed out. And the flight attendant comes down the aisle and she looks at this guy and she says, sir, And he's asleep. He doesn't wake up. So she says it louder. She says, sir, now people start paying attention. What's going on here? Why is this lady yelling at this guy? And everybody can see that he's sleeping. He's got his big old pillow right underneath his neck. And so she says it a third time, she says it even louder. She says, sir, and he wakes up. He says, whoa, whoa. What is it? What is it? And she says, sir, what would you like to drink? And we laugh at this story. It's ridiculous. But we do this to our customers and users all the time. We reach out to them with pings, dings, and rings when it's convenient for us, not when it's convenient for the user, not when the user feels the itch.

Does that guy want a glass of water? Yeah, but he doesn't want it when he's sleeping. He wants the drink when he's thirsty. So that's why I want product teams to stop thinking about when people feel good, when they're, when they're feeling good, leave them the hell alone. I want to challenge product teams to ask themselves, when is the user feeling bad? That's the difference between an external trigger, a ping, ding, a ring that feels like magic, and one that feels like spam. The key word is context. Context. The closer together you can couple the external trigger. The minute that that ping, ding, or ring is received with the internal trigger. The moment that that uncomfortable feeling is felt, the closer you can couple those two together, the more likely they are to get a response. That's the difference between sending something that feels like spam and sending a message that feels like magic is understanding when does that user have the psychological itch? So you have to understand where are they in time and place? Where are they most likely to experience that sensation? And that will guide what type of notification to send them. Not, oh, let me just send it whenever it's convenient for me. I don't know. Let's send it now. Let's send more emails, let's send more notifications. If you do that kind of thing. You burn people out, not only will they stop using your app, they'll uninstall you.

Good luck getting them back. You'll never get them back because you've burned them out. We saw this with Groupon. How many billions of dollars was Groupon worth until they discovered, Hey, people respond if we send more messages. So let's send them. They went from one a day. They used to have a very strict rule, one per day. Whoa, whoa, whoa. Oh look, two a day works. Three a day, four a day. And then finally people said, screw this. This is junk. I don't need this. And they uninstall the app altogether. They never recovered. So we really have to spend some time thinking about when does the user feel that internal trigger that guides everything that comes after.

(20:15) Jeremy Au: (20:15)

Right. And I think that's where we talk about actions, because there are different types of notifications that you push out a response to it, the solutions so, so forth. So could you walk through how companies or teams, or designers should be thinking about the action after the trigger?

Nir Eyal: (20:29)

Sure. So we've got an external trigger, internal triggers. Next comes the action phase of the hook. The action phase is defined as the simplest behavior done in anticipation of a reward. The simplest thing the user can do to get relief from that psychological itch. And so the rule here is, That the easier we can make something to do, the more likely people are to do it.

So we talk a lot about in product design, about removing friction. Now we don't always want to remove friction. It's not that friction should always be removed. Sometimes we want to insert friction. I'll tell you where to insert friction later on. It's called in the investment phase. But for the action phase, before the user receives their reward, before their itch is scratched, we want to make getting to that reward as easy as possible. And so what we see oftentimes is that companies, particularly ones that are led by engineers, they tend to have way too much, way too soon. All kinds of buttons and options and features, and they don't spend the time, that's the easiest thing to do, by the way. Just throw everything at the consumer. They'll figure it out. And a well-designed product is one that thinks about, wait a minute, what's the keystone habit? The keystone habit is the habit that all the other behaviors depend upon. So if you think about TikTok, for example, if TikTok can't get you to check the app, if Instagram can't get you to scroll, you won't do all the other things you can do with those products, you have to open the app and scroll or swipe.

You have to do that. If you don't, if they can't get you hooked on that keystone habit, they can't tell you about all the other amazing things the product can do. So you have to think about what is that keystone habit. What's your very first hook, and how can we make that behavior as easy as possible to do? And of course, there's a whole chapter in the book on how to do this. I'm giving you the high level summary, but that's essentially what the action phase of the hook model is about reducing friction before the reward.

Jeremy Au: (22:16)

And reward here. So we use the word " variable reward" is a big part about it, but also reward itself. So let's talk more about what that means.

Nir Eyal: (22:28)

Sure. So the third step of the hook model is the variable reward phase, and this is quite different from what you see with traditional habit models. Traditional habit models just have some kind of reinforcer, but we find with product specifically, remember hooked is written specifically for product people. It's not for personal habits. It's not how do I exercise more or whatever. It's about how do I build habit forming products, and it turns out the habit forming products always have this type of variable reinforcement. Where does this come from? This comes from the classic work of B.F. Skinner, the father of operant conditioning.

He had these very famous experiments back in the 1950s where he had pigeons. He put them into a box. Today we call this a Skinner box, and he allowed these pigeons to peck at a disc whenever they were hungry. Okay, so if the pigeon was hungry, by the way, this is a very important point that a lot of people don't realize about this experiment, even if they've heard about it before, Skinner starved his pigeons. It's a little cruel, but that's what he did. He starved his pigeons. Why? Because he had to make sure that they had that internal trigger of hunger, because if they weren't hungry, they didn't care. They did other stuff with their time. Just like the reason I tell you this, just like our users have to have an internal trigger, we can't starve our users, obviously. We have to look for an existing internal trigger. We do not create internal triggers. Okay? People are not cage pigeons. We have to find an existing internal trigger. If we don't, none of this stuff works, none of this stuff. Which is why I really object to people who say, oh, you know, technology is hijacking our brains. It's addicting us. The companies are making people do things that they didn't want to do. Not exactly. It's not that simple. I know all their tricks. This stuff works. But only if there is an existing customer need. So back again, I can't emphasize this enough. You have to know your user's internal trigger.

So, back to Skinner. Skinner found that he could train his pigeons whenever they were hungry and he trained them to peck at a little disc every time they wanted a little food pellet, A little reward. Pretty simple, right? Peck at the disc, get a reward. This is called operant conditioning. And if you've taken Psychology, 101, you've certainly heard about this. If you have children at home, as I know we both do, you've trained their behavior one way or another by saying, Hey, if you do this, you get that. That's operant conditioning, no big deal. One day, Skinner had a problem. Skinner walks into his lab, checks his pocket and he realizes he doesn't have enough of these rewards.

He doesn't have enough of these food pellets. He can only afford to give it to the pigeons once in a while. So sometimes the pigeons peck the disc. No reward. The next time the pigeon pecks at the disc, they do receive a treat, and what Skinner observes is that the rate of response, the number of times the pigeon pecked at the disc increases when the reward is given on a variable schedule of reinforcement. So in all kinds of products and services, online, offline, enterprise, consumer, it doesn't matter. Whenever you see a habit forming product, you are always going to find some kind of variability and variable rewards come in these three types, rewards of the tribe, rewards of the hunt, and rewards of the self. So every habit forming product needs to have at least one of these three variable rewards. The most habit forming products involve all three.

Jeremy Au: (25:36)

What is wrong with a fixed reward? I mean, variable reward sounds like it's an add-on, but is there any issue of just doing a fixed reward, because it's easier to structure, it's easier to operationalize? Like every time you do this, you get five bucks, or coupon. So how do you think about that?

Nir Eyal: (25:51)

People get bored. People get tired of it, in general. Now, where it does work, however, where a fixed reward, and this is a little bit of a slight of hand in a way, is that there are some cases, for example, you know, let's say grab picks you up, right? Your Grab driver picks you up and you're in a rush to get to the airport. And then the Grab driver says, Hey, I read this book Hooked and variable rewards are super important, so I'm not going to take you to the airport. We're going to go get some durian instead. That's a surprise variable, but not appreciated. So, I'm in a rush to get to the airport. Let's get during next time. So why is that? Well, because I would argue that getting your ride on Uber is operating that situation, that psychological state, that user is operating in an inherently variable situation. Wil I get to the airport on time, question mark? Can I make my flight question mark? Does this driver know where he's going? Can I make it to where I'm going on time? Question mark. Those questions have a variable reward attached to them. They're already variable. They're inherently variable. So products that operate in an inherently variable situation do the opposite. They give the user certainty and control.

Jeremy Au: (27:07)


Nir Eyal: (27:07)

On Google, when you search for something, the act of a search query is inherently variable. So you want to give agency and control and certainty where the situation is already variable. Does that make sense? So sometimes, some products want to insert variability. Other products operate in an inherently variable situation and want to give the user greater agency and control.

Jeremy Au: (27:28)


Nir Eyal: (27:28)

But the point is there's always a variable reward in both situations. The variable reward is still there.

Jeremy Au: (27:33)

Right. And is this the question about from the operator's perspective, like how to structure or systemize it in a way?

(27:39) Nir Eyal:

Exactly, right.

(27:41) Jeremy Au:

And lastly, the last stage was investment, which I found very fascinating. Could you share a little bit more about what investment is?

(27:47) Nir Eyal:

Sure. So the investment phase of the hook is where the user puts something into the product to improve it with use. And the investment phase is the prob probably the most overlooked of the four steps of the hook model. It's where the user puts something into the product. It's a bit of friction, actually. Back to that idea that friction should always be removed. Sometimes you actually want to add friction at the right time, after the reward. After the reward. So this is where the user increases the likelihood of the next pass through the hook by putting something into the product, because for habit forming products, one of their definitive traits is that they must appreciate with use, they have to get better and better the more they're used. This is a big difference from traditional manufacturing, if you think about your couch, your clothing, your car, these things depreciate. They lose value with wear and tear, but habit forming products do the opposite because of this concept that I coined, called "stored value". Stored value is, it takes many forms. It can take the form of content, followers, reputation, anything that the more I use the product, the more value that product accrues to me. So, for example, Airbnb or eBay or Upwork, when I use these products, the more I use them, the more valuable they become to me.

The better my reputation, and even if a better product or service comes along, I'm not going to switch right now. Suddenly there's this very high switching cost because of the stored value I've put in the product. So anywhere you can get a customer to customize, to personalize, to put in data, to put in effort, to put in content, to stake their reputation, all these forms of small bits of investment, you don't want them to do too much too soon or they'll leave. But the small bits of investment that improve the product with use, this increases the likelihood that the user will come back again and again, even if a better product comes along.

Jeremy Au: (29:33)

And normally, I think people think about it from a call to action, which is like they want the user to do something after that high experience, but here you're talking about it more from an investment perspective. So could you share maybe kind of like why that's important? Cause I think to me, it feels a little bit more important because you're looking at it not just from a, what economic extraction perspective, but now you're looking at saying that this feeds back into the core loop as well.

Nir Eyal: (29:58)

Exactly. Yeah. So money, usually it can be a form of investment, but that's a very heavy investment of money. There's many other forms of investment data, content, reputation, skill acquisition, anything that, an emotional investment. These small bits of work, the user puts into the product to make them more likely to use it again in the future.

So it's not necessarily money. That's one of the , that's much further along through successive cycles, through the hook that someone would actually put down cash. It can be a form of investment, right? If you pay for something. I paid money for this water bottle, therefore this is my go-to water bottle.

I don't think about other water bottles cause I already paid for it. And here it is, this physical manifestation on my desk. I'm more likely to use this than to go get something else. But that, for most products that comes later, especially with e-commerce for example, I see this problem all the time where companies are so committed to getting customers to check out. That's all they think about is how do we get customers to check out? And they totally miss the opportunity to get customers to check in.

Jeremy Au: (30:54)


Nir Eyal: (30:55)

The result of engagement is monetization.

Jeremy Au: (30:58)


Nir Eyal: (30:58

The result of engagement is monetization. If you can get a person to engage with a product enough, the result of that engagement, hopefully when it is time to buy the product, will be monetization. You see this a lot with products that will never make buying a habit. Let's be very clear. For the vast majority of products, buying is never going to be a habit. Why? What's the definition of a habit? The definition of a habit is an impulse to do a behavior with little or no conscious thought. So purchasing something requires a lot of conscious thought.

That is not going to be a habit, but I could create other habits to bolt on to that product so that when it is time to buy, guess what they're going to think of. So I'll, I'll give you a quick example. I was at a conference in Las Vegas in front of 500 real estate brokers, real estate agents and the person who hired me said, okay, now we're going to have Nir Eyal, he's an expert on habit formation, and he's going to tell us how to make home buying and selling into a habit. I got up on stage. I said, I'm so sorry. I don't know how to help you make home buying and selling a habit, because home buying is never going to be a habit, right? You'd be so lucky that you ever get to buy a home. That's something that happens every five, ten years, maybe for the average person.

It's not something that's done with little or no conscious thought. So don't even try, but what you can do, so I gave my talk and I only have two books, so I only have two talks really. So I gave my talk and then afterwards people came up to me. These agents say, I know what I'm going to do. I'm going to create a content habit. So one person said, I'm going to create a newsletter. So that I'm constantly in communication. I'm going to create a content consumption habit around things that are happening in my neighborhood and the local high school game and what movies are playing in town. All these things that locals would want to know so that the result of that engagement, that habit with my newsletter, for example, if I can give people a hook to opening my newsletter, Hey, when they are ready to buy or sell their home, guess who they're going to call? So that would be a content habit. Another example might be a community habit. So for example, take a look at Y Combinator, right? Y Combinator is probably the most successful startup incubator in the world that, you know, applying to Y Combinator is never going to be a habit. You don't do that with little or no conscious thought.

Not going to be a habit. But what do they do? They have this wonderful website called Hacker News. Every technical person in the world is on Hacker News, right? That's how we keep up to date with the latest and greatest. The website hasn't been changed in decades, right? It's not nothing special, but they have a community of people who are engaged with this website and at the top it says Y Combinator, right? So they are sponsoring this community that eventually will lead to when people are on this community of people discussing what's going on in the tech community when it is time for one of them to apply to an incubator. Guess which one they're going to apply to? So those are two ways that you can bolt on a habit forming product to a product that is not itself inherently variable by building this full hook model around those engaging experiences.

Jeremy Au: (33:56)

So, you know what's interesting is that you gave some examples, obviously, one that you had was in terms of social media consumption, and now one you just mention was about real estate. What are some other examples of an industry you think is increasingly adopting the hook model or you think is a good demonstration of these principles being done?

Nir Eyal: (34:15)

Sure. So I think, we see EdTech moving into this field. I invested, thankfully, in a few very successful companies. Kahoot is a unicorn that I was thankful enough to have invested in. Johan, the founder called me up a few years ago. This kid, 20-something year old kid, called me up and said, Hey, I read your book Hooked and here's my hook model. What do you think? And he walks me through the four steps of his hook model. Super impressed. I said, Hey, take my money. Can I invest something in your company? I think it's really cool. And a few years later, the company's now publicly listed, and anybody who has school aged kids, chances are your kids are using kahoot. Great example of a habit forming product that is used in the edtech space. Of course, Duolingo, a former client of mine, so a lot of developments are happening in edtech and I think we're just getting started because previously that investment phase was really tough. The first three you could get right, the trigger, the action reward, no problem.

The investment was tough and we've been talking about personalized learning for decades. The dream of online education is to custom-tailor the content for each and every student, but that's really been tough to do on a massive scale. I think now what's going to happen with LLMs, like ChatGPT is that now we can start integrating more easily for all kinds of products to pick up where you left off in a much more seamless way. So I'm very bullish about what we might see in EdTech products over the next few years. That's one area. HealthTech is a huge area, right?

We see people wearing all kinds of devices like the Oura Ring, and now, the Apple Watch Ultra can do unbelievable things. So we're going to start seeing more and more ways to collect this information. Again, feeding the investment phase, so that we can make the product better and better with use. I mentioned it earlier, the investment phase is the most overlooked of the four steps of the hook model, and I think that's where we're seeing finally, with the influx of more data being able to be processed in new ways in order to customize and personalize experiences, I expect some very interesting breakthroughs in those industries over the next few years.

Jeremy Au: (36:13)

And what's interesting of course is that I also see this actually in the Chinese approach to e-commerce. So I think we see companies like Temu and Shine Hua have been really growing a lot, and I think one of the interesting things has been observing that they are not just looking at e-commerce as a path to purchasing, as you shared earlier, but as also a path to explore the fun around the experience of purchasing.

Nir Eyal: (36:36)

Yeah, I think it's, it's dangerous though. I think with Shein, Shein's competitive advantage, I don't believe has as much to do with the consumer habit as it does with their economies of scale. The fact that Shein can deliver you cheap. Like that's what they do fast and cheap, and so it's really about their supply chain. It's really about their economies of scale. The scary thing there is if somebody can figure out how to make it cheaper, I think they're screwed because they have trained their consumer to shop based on price. And the problem there is if you don't create a habit, if you don't get the user to invest in the product so that they create this stickiness with the product, you're going to be fighting over price and features and price and features all day long.

And we know what happens when that occurs, your margins go to next to zero and you don't have the kind of business that can create long-term returns and eventually, look, somebody's coming for Shein. Somebody's going to copy that model. It's not intellectual property as far as I know.

I don't think the brand is what keeps people coming back. What they have is economies of scale. They can make stuff dirt cheap. But you know what? Walmart used to be all about dirt cheap, and then Amazon came along and now Amazon was making stuff dirt cheap and then Shein came along and there will be something after Shein that makes stuff super cheap, right? So competing on price alone can be a winning strategy, but boy, you're going to have a lot of knives in your back. You better be very careful because somebody's going to try and copy that very, very quickly, especially we know how good people are, the manufacturers in China are at emulating and copying these type of strategies. So if I were Shein, I would figure out, I would take out the hook model and I would ask myself, where is it weakest? And where it is weakest is the investment phase, and they, by the way, they can fix this. You know how they fix it. They start personalizing the product based on customer preferences. So, one of the big jokes on Shein is that people get the stuff mailed to them and it's garbage, it's see-through, it's easily terrible that people post all these TikToks about like, you know, here's what it looked like and here's what I got, and they make fun of Shein for that.

So looking at, hey, customer preferences based on how much did you like that item? What did you think? You know, how, how can we make sure that we are informed based on what we recommend for you next time? I know you can do a little bit of that, right? Like you can put in style information, et cetera. But they should be, they should really be doubling down on building a customer persona per user so that they don't even waste time showing them anything that's not exactly in their size, exactly in their taste preference. I mean, I think there will be a day in a few years from now, where companies will just start sending you stuff, right? Whether you order it or not. They'll get so good. Like Amazon, I think, we'll, we'll do this within the next decade.

They'll just say, look, we're going to, we know what you want before you even know. Instead of shopping, just send back whatever you don't want. There's, like, I've heard this this new plan to start in the states to start sending Amazon boxes to save money to your local coffee shop or 7-Eleven. They do this already in Indonesia and other countries. So apparently they're going to try and do this in the States, and I think they're going to set themselves up for a model where they are taking the pain out of returning stuff. You know, now it's kind of a pain to wrap, print out a label, wrap it up, take it to the post office. Eventually, you know, when you go get your latte in the morning, you'll also drop off your returns and that will enable a company like Amazon to say, look, we have so much data on you. We know what you want. Just send us back what you don't want.

Jeremy Au: (39:56)

Wow. That is quite the future, but like you said, it's not very far away and on that note, and I'd love to kind of like summarize the three big takeaways I got from this. First of all, thank you so much for walking me through the model, from the trigger, to the action to the variable reward to the investment. So I think a really interesting description about how that flow happens, but also how you came up with the idea and how you started thinking about it in the set of different industries and different business models.

The second of course is thank you so much actually for sharing the dive around, the phrase I wrote down here is, " the carrot is the stick". I love that phrase. There is no spoon. Thought it was a great way to explain about what's going on in terms of reward, but also trigger in many ways and about what craving is and what that set of emotions are. And lastly, thanks for sharing about how different companies can implement that in different approaches. So for example, in real estate, for example, in e-commerce. So thank you so much for sharing today.

Nir Eyal: (40:55)

My pleasure. Thanks for having me on. I look forward to seeing you in a few weeks again.