The Power of Habit: How Understanding Habits Loops Can Improve User Retention

In today's digital world, successful products are the ones that integrate into user’s daily routines. That’s why product managers need to understand the psychology behind habit-forming products.

At the core of this psychology is the concept of habit loops. When you understand and leverage them effectively, these loops become the key to ensuring that users return to use the product repeatedly.

But why are habit loops so powerful? And how can they be harnessed to boost user retention?

In this article, we will dive into:

• What are habit loops?
• Why should habit loops concern you?
• How do habit loops increase user retention?
• Case study — Flo app
• Practical steps to create habit-forming products
• The Dark side of habit-forming products

What are Habit loops?

"The Habit Loop is a neurological loop that governs any habit. The habit loop consists of three elements: a cue, a routine, and a reward. Understanding these elements can help in understanding how to change bad habits or form better ones."

- Duhigg, C.

Elements of the habit loop

• The Cue

The cue for a habit can be anything that triggers the habit. Cues most generally fall under the following categories: a location, a time of day, other people, an emotional state, or an immediately foregoing action.

• The Routine

A habit's routine is the most obvious element: the behaviour you wish to change (e.g. smoking or biting your nails) or reinforce (e.g. taking the stairs instead of the elevator, drinking water instead of snacking, meditating when feeling anxious).

• The Reward

The reward is why the brain decides the previous steps are worth remembering for the future. The reward provides positive reinforcement for the desired behaviour, making users more likely to engage with that behaviour again. The reward can be anything, from something tangible to something intangible to something with no inherent value but what it is given.

Why should you care about habit loops?

The most influential digital products on the market are habit-forming. They create engagement loops that bring users back repeatedly, not out of necessity but out of habit.

Product managers can use the principles of the Habit Loop to build products that meet users’ needs and form part of their daily routines.

Why understanding and employing habit loops is beneficial?

1. Increased Engagement: The more user interacts with a product, the more value they get from it, resulting in a deeper product-user relationship.
2. Monetization Opportunities: Habitual users are more likely to make in-app purchases, upgrade to premium versions, and are less sensitive to price changes.
3. Organic Growth: Users who find products valuable are more likely to recommend them to others.
4. Competitive Advantage: Products that integrate well into users' daily routines are less sensitive to competition.
5. Data Collection: Regular user engagement provides a continuous stream of data. This data gives insights into user behaviour, preferences, and pain points.
6. Predictable User Behavior: Understanding habit loops allows product managers to foresee user behaviour more accurately, aiding in long-term planning and strategy formulation.

Habit loops and understanding habit-forming mechanisms allow product managers to create products that meet users' needs and become essential to their daily lives.

This integration leads to long-term product success, sustainability, and growth.

Habit Loops and User Retention

User retention and user acquisition - one cannot exist without another. Both are crucial for a product's growth; no company can live without a user base. Yet user retention requires engagement and building a relationship. This makes them feel you care and motivates them to continue using your products.

Other compelling reasons to consider user retention:

• Cost-Effectiveness: Acquiring a new user is often more expensive than retaining an existing one. Marketing campaigns, advertisements, and other acquisition strategies quickly consume a company's budget.
• Lifetime Value: Retained users generally have a higher lifetime value. They're more likely to make repeat purchases and upgrade, leading to increased revenue over time.
• Product Evangelism: Satisfied, retained users become advocates for your product. They're likelier to suggest it to friends and colleagues. That provides organic growth.
• Feedback Loop: Retained users give helpful feedback. Their continued engagement means they're invested in the product's success and can provide wisdom into potential improvements or new features.

Now, how do habit loops play into this?

As noted in Nir Eyal's "Hooked: Hooked: Habit-Forming Products," Habit loops are cyclical processes that drive user behaviour. The four components—Trigger, Action, Variable Reward, and Investment—work in tandem to create habitual product use.

When users consistently go through this loop, they form habits around a product. This habitual use makes them less likely to churn, directly boosting retention.

The more often a user goes through the habit loop, the deeper the product implants into their daily routine. Over time, this repeated engagement firms their relationship with the product, making them less sensitive to competitors and more likely to stick around.

Habit loops are the machine behind high user retention rates. They assure that users don't just sign up and engage once but return repeatedly, deriving value each time. As product managers, comprehending and leveraging these loops can convert casual users into loyal product advocates.

Case Study: Successful Application of Habit Loop in Digital Products — Flo app

The Flo app is a menstrual cycle tracking and fertility app that helps women understand their bodies better. Let's analyze it using Nir Eyal's "Hooked" model:

Trigger

External Triggers: These could be notifications to log symptoms, emails with insights about their cycle, or articles about women's body. For new users, seeing friends use the app or reading about it in media can also serve as triggers.

Internal Triggers: As women get accustomed to using Flo, they might start logging symptoms or checking predictions instinctively when they feel specific physical or emotional changes. The wish to understand or predict one's cycle can also be an internal trigger.

Action

The primary action in the Flo app is logging daily symptoms, moods, and activities. Other actions might include reading articles, interacting with the community, or checking predictions about the menstrual cycle.

The simplicity of logging and the immediate feedback (predictions or insights) make the action phase compelling.

Variable Reward:

These are insights and predictions about their menstrual cycle. One month, a user might discover a pattern in her mood swings, while another month, she might get clarity on her most fertile days or even get notified of specific abnormalities in the cycle.

Flo also offers articles and tips, which can vary in relevance and interest for the user. Unpredictable content drives users to engage more frequently, as new information is always a surprise.

Investment:

Users invest in Flo by consistently logging their data. The more data they log, the more accurate and personalized the predictions and insights become. Engaging with the community and bookmarking articles increases investment in the app. Users who see the value of their accumulated data and insights are more likely to return to the app and even recommend it to others.

The Flo app effectively leverages the Hooked model. It provides timely external triggers, enables easy and meaningful actions, delivers variable rewards in insights and content, and encourages user investment through consistent logging and engagement.

This combination can make the app a habit-forming tool for many users, helping them better understand and navigate their menstrual cycles.

How do you get started creating habit-forming products?

As a product manager, how can you begin working towards habit-forming products?

A helpful tool is Habit testing, discussed in the book “Hooked: How to Build Habit-Forming Products? by Nir Eyal.

Habit Testing: A Guide for Product Managers

Habit Testing is a systematic approach to optimize products for habitual use. Embedded in behavioural psychology and the principles of the Lean Startup Movement, it offers a structured way to ensure products attract users and embed themselves into their daily routines.

1. Identify Habitual Users

First step: pinpoint who from your user base are the Habitual Users. These users frequently engage with your product and get significant value from it. As a general guideline, it's a good sign if at least 5% of your users can be categorised as Habitual Users. If less than 5% of your users fall into this category, your product needs reevaluation or refinement (Nir Eyal, Hook: How to Build Habit-Forming Products).

How?

Use analytics tools to track user engagement metrics. Check for patterns: daily or weekly active users, session lengths, and feature usage. Conduct surveys or interviews to understand the motivations and behaviours of these users.

Example

For a fitness app, Habitual Users might log their workouts or meals daily, engage with community features, and have streaks of daily check-ins.

2. Codify the Habit Path

Once you've identified Habitual Users, the next step is to define the Habit Path. This is a series of actions or behaviours that these users frequently take.

How?

Analyze the shared actions of your most loyal users to determine the Habit Path.

For instance, Twitter's analysis revealed that once new users followed at least 30 other people, they reached a point that greatly increased the likelihood of continued engagement.

Every product will have a unique set of actions dedicated users frequently take. The primary objective is determining which actions are pivotal for cultivating loyal users. You should aim to create a product experience tailored to promote such behaviours.

Example

Let's discuss the case of the Flo app. Typically, app users will first check how many days are left until their next cycle. After that, they will look into their personalized health insights before moving on to the secret chats section.

3. Iterate and Test

Now, you’ve gained great insights from the previous steps; in the next phase, you must refine the product to make it more conducive to habit formation.

How?

Developing a prototype based on the Habit Testing insights is just the beginning. It's crucial to introduce the product to the market and iterate upon it continuously. This iterative process is essential to transform the product into a truly habit-forming entity.

Example

If a reading app finds that users who engage with daily reading challenges become Habitual Users, they might test different challenges or offer personalized challenges or recommendations.

Additional Considerations

• Feedback Loop: Encourage Habitual Users to provide feedback. Their insights are invaluable in refining the Habit Path for other users.
• External Triggers: Use notifications, emails, or other external triggers to drive users back to your product, reinforcing the Habit Path.
• Reward Systems: Present variable rewards for users as they complete actions on the Habit Path.
• Community Engagement: Often, Habitual Users are also active community members. Encourage community interactions, as they can reinforce habitual behaviours.

The dark side of habit-forming products

Some products encourage positive habits: reading, meditating, helping to increase your productivity, and exercising. Yet, it's essential to recognize the potential pitfalls.

When products inadvertently lead to addiction, users might spend excessive hours engaged. Consider the social media platforms like Instagram and TikTok. For some, they grow into an overpowering compulsion, making disconnecting problematic.

As you build and design intentionally, remember the fragile line between encouraging positive habits and inadvertently promoting harmful ones. Always prioritize user well-being and positive impact.