How to Create a Habit-Forming Business

How can you create a business that becomes a habit for your customers and ensures that they keep coming back for more? Nir Eyal, author of the best-selling book, Hooked: How to Build Habit-Forming Products, explains the process that will generate success.

In this exclusive interview, you’ll discover:

  • The best time to use behavioral economics in your business;
  • How all companies can utilize ‘user’ interaction to improve their products and services;
  • The unusual yet effective method some US states are using to encourage people to get the COVID vaccine; and
  • What to focus on if your product doesn’t require repeated use.
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What place should behavioural economics have in marketing and design?

When it comes to what drives human behavior, there are many models we can use to understand it and its influences. Some of our models are perfectly good at predicting behavior. Like incentives, for example, which is perhaps one of the best models for this. Classical economics tells us that when there's some kind of financial incentive or way to maximize utility, people tend to behave just as we predicted. So it doesn't mean we should throw out that model. 

Sometimes there are exceptions to the rule, though. Classical economics, for instance, teaches us that people will buy more of something as the price goes down. Yet, there are some products where that’s not the case. Sometimes if the product price goes up — like a luxury good, for example, which is seen as more valuable — people will still buy more of it. It’s kinda weird, but it does happen.

There are exceptions to classical economics rules. Sometimes if the product price goes up, it is seen as more valuable and people will buy more of it.

So, perhaps where behavioral economics is helpful is in the exceptions that oftentimes make the rule for certain products and certain industries. So I don't think it should be overweighted. I think it should be appropriately weighted that sometimes behavioral economics provides the only solution to a problem under certain constraints.

Online course Psychology of Price & Product Perception
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Psychology of Price & Product Perception
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Why is behavioural economics important?

I wouldn't say it's just behavioral economics. I would expand that aperture to include behavioral design. Behavioral design is looking at the application of consumer psychology and behavioral economics to design a user behavior. Many times I think the best time to look at a behavioral design solution is when money is extremely tight. 

We always know that we can change consumer behavior through economic means, such as running a coupon, discount, or some kind of promotion. This is pretty much the oldest trick in the book. But sometimes there are behaviors that are way too expensive to change. And in those cases, incentivizing people with straight-up discounts just doesn't work. 

Use time, effort and language to increase value
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How To Use Time, Effort, and Language To Increase Your Product’s Value in the Eyes of Your Customers

I think a great example of what we face today is getting people to take the COVID vaccine. It would certainly work if we paid everybody to go and get the jab, but this would be very expensive. However, it turns out that there are many other ways governments can incentivize the vaccine, ones you’d least expect to work that can actually be highly effective.

This includes the lottery. In the US, several jurisdictions have said that if you come to get the vaccine, you'll automatically be entered into a lottery pool. And if you're picked from this pool, you'll win a million dollars. I think it's incredibly effective and very penny-wise. I have to say, you wouldn't expect it to work, but it's much more cost-efficient than paying every single person.

Increasing user ability is almost always more effective than increasing motivation. I think the standard marketing modus operandi is “throw more money at advertising and that’ll make people want our product more.” But it turns out that it's much more effective to make the product easier to consume and easier to use. 

Increasing user ability is almost always more effective than increasing motivation. Instead of spending on advertising, it turns out that it's much more effective to make the product easier to consume and easier to use.

This will actually give you much more bang for your buck. Because you can actually get a disproportionate return on your investment by designing a product in such a way that it can be used more easily and accessibly rather than by increasing motivation. And it doesn’t matter if the product is from a small business or a big brand.

What happens if psychology isn’t taken seriously?

We usually default to the standard solutions; I think we just tend to waste a lot of money. The problem is that you can always design for growth. You can always buy growth. So when standard marketing precepts are followed, like increasing brand exposure, it's really to drive the growth of a product and the market share. And that model definitely works. 

The problem is you can't buy engagement. You can buy growth, but you can't buy engagement.

The problem is you can't buy engagement. You can buy growth, but you can't buy engagement. So you can go and dump truckloads of money on Facebook or Google, television stations, or radio stations and get your message out there, but it’s going to cost you a lot. Because engagement can’t be bought. And so, if you don't design engagement into the product, what you tend to get is what we like to call a leaky bucket. 

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