Sary's notes on Hooked

Increasing Customer Lifetime Value: 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.

Providing Pricing Flexibility: 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 ha-bitually. 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. 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.

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.

By addressing shoppers' price concerns, Amazon earns loyalty even if it doesn't make the sale and comes across as trustworthy in the process. The tactic is backed by a 2003 study, which demonstrated that consumers' preference for an online retailer increases when they are offered competitive price information. The technique has also been used by Progressive, the car insurance company, to drive over $15 billion of annual insurance sales, up from just $3.4 billion before the tactic was implemented.

By allowing users to comparison shop from within the site, Amazon provides tremendous perceived utility to its customers. Although shopping on Amazon may not occur as frequently as searching on Google, the company solidifies its place as the default solution to customers' purchasing needs with each successful transaction. In fact, people are so comfortable comparison shopping on Amazon that they frequently use the company's mobile app to check prices when standing in the aisles of real stores-often making a purchase from inside a competing retailer.

In the Habit Zone A company can begin to determine its product's habit-forming potential by plotting two factors: frequency (how often the behavior occurs) and perceived utility (how useful and rewarding the behavior is in the user's mind over alternative solutions). Googling occurs multiple times per day, but any particular search is negligibly better than rival services like Bing. Conversely, using Amazon may be a less frequent occurrence, but users receive great value knowing they'll find whatever they need at the one and only "everything store.”

"Are you building a vitamin or painkiller?" is a common, almost clichéd question many investors ask founders eager to cash their first venture capital check. The correct answer, from the perspective of most investors, is the latter: a painkiller. Painkillers solve an obvious need, relieving a specific pain, and often have quantifiable markets.

A habit is when not doing an action causes a bit of discomfort. Let's consider a few of today's hottest consumer technology companies: Facebook, Twitter, Instagram, and Pin-terest. What are they selling vitamins or painkillers? Habit-forming technologies are both. These services seem at first to be offering nice-to-have vitamins, but once the habit is established, they provide an ongoing pain remedy.

Answer these questions when designing a product: - What habits does your business model require? - What problem are users turning to your product to solve? - How do users currently solve that problem and why does it need a solution? - How frequently do you expect users to engage with your product once they are habituated? - What user behavior do you want to make into a habit?

Types of External Triggers Companies can utilize four types of external triggers to move users to complete desired actions: 1- Paid Triggers Advertising, search engine marketing, and other paid channels are commonly used to get users' attention and prompt them to act. Companies generally use paid triggers to acquire new users and then leverage other triggers to bring them back.

Types of External Triggers Companies can utilize four types of external triggers to move users to complete desired actions: 2-Earned Triggers: Favorable press men-tions, hot viral videos, and featured app store placements are all effective ways to gain attention. For earned triggers to drive ongoing user acquisition, companies must keep their products in the limelight- a difficult and umpredictable task.

Types of External Triggers Companies can utilize four types of external triggers to move users to complete desired actions: 3- Relationship Triggers: One person telling others about a product or service can be a highly effective external trigger for action. Whether through an electronic invitation, a Facebook "like," or old fashioned word of mouth, product referrals from friends and family are often a key component of technology diffusion. Proper use of relationship triggers requires building an engaged user base that is enthusiastic about sharing the benefits of the product with others.

Types of External Triggers Companies can utilize four types of external triggers to move users to complete desired actions: 4- Owned Triggers: Owned triggers consume a piece of real estate in the user’s environment. For example, an app icon on the user's phone sereen, an e-mail newsletter to which the user subscribes, or an app update notification only appears if the user wants it there. While paid, earned, and relationship triggers drive new user acquisition, owned triggers prompt repeat engagement until a habit is formed. Without owned triggers and users' tacit permission to enter their attentional space, it is difficult to cue users frequently enough to change their be-havior.

Yet external triggers are only the first step. The ultimate goal of all external triggers is to propel users into and through the Hooked Model so that, after successive cycles, they do not need further prompting from external triggers. When users form habits, they are cued by a different kind of trig-ger: internal ones.

Internal Triggers When a product becomes tightly coupled with a thought, an emotion, or a preexisting routine, it leverages an internal trigger. Unlike external triggers, which use sensory stimuli like a morning alarm clock or giant "Login Now" button, you can't see, touch, or hear an internal trigger.

Once we're hooked, using these products does not always require an explicit call to action. Instead, they rely upon our automatic responses to feelings that precipitate the desired behavior. Products that attach to these internal triggers provide users with quick relief. Once a technology has created an association in users' minds that the product is the solution of choice, they return on their own, no longer needing prompts from external triggers.

First, the company must identify the particular frustration or pain point in emotional terms, rather than product features. How do you, as a designer, go about uncovering the source of a user's pain? The best place to start is to learn the drivers behind successful habit-forming products- not to copy them, but to understand how they solve users' prob-lems.

Jack Dorsey, cofounder of Twitter and Square, shared how his companies answer these important questions: "[If] you want to build a product that is relevant to folks, you need to put yourself in their shoes and you need to write a story from their side. So, we spend a lot of time writing what's called user narratives."

Dorsey believes a clear description of users--their desires, emotions, the context with which they use the product--is paramount to building the right solution. In addition to Dorsey's user narratives. tools like customer de-velopment," usability studies, and empathy maps'? are examples of methods for learning about potential users. One method is to try asking the question "Why?" as many times as it takes to get to an emotion. Usually, this will hap pen by the fifth why. This is a technique adapted from the Toyota Production System, described by Taiichi Ohno as the "5 Whys Method." Ohno wrote that it was " he basis of Toyota's scientific approach ... by repeating 'why? five times, the nature of the problem as well as its solution becomes clear."