Stanford Graduate School of Business

This week, Stanford GSB’s Social Web Strategist Karen Lee is sharing her class notes from a Week 0 course called “How Neuroscience Influences Human Behavior,” co-taught by Marketing Professor Baba Shiv and Lecturer Nir Eyal. Each post focuses on an interesting insight from class.

Companies that develop habit-forming products can be good for business. Why? Products that people use habitually can have higher lifetime value, greater price inelasticity, lower costs of acquisition and higher ROI. By understanding the nature of how habits are formed, businesses can largely benefit from a long-term company strategy focused on customer habits, engagement and loyalty. 

A habit is a behavior that is nearly or completely involuntary without cognition. For example, people who bite their nails don’t even realize they’re biting their nails – they’re not thinking about it. We generally think of habits as bad behaviors that we want to resist, but there are also good habits that we actually want to do, such as flossing your teeth or wearing a bike helmet. Today, software, gaming and technology companies are designing habit-forming products in order to succeed in a growing and crowded marketplace. In class, a couple students confessed that they share the same habit of checking Facebook several times a day.

To build habits, an individual needs automaticity. It’s the ability to do things without occupying the mind with low-level details, allowing it to become an automatic response pattern. Automaticity is necessary for making quick decisions and actions. Without automaticity, you’d have trouble learning and making simple decisions. Research on people with an impaired basal ganglia - the part in your brain that stores your instinctual habitual learning – discovered that they have trouble making emotional decisions, ignoring insignificant details and acting quickly ‘from the gut.’

According to Nir Eyal (who co-teaches this class and graduated from the GSB in 2008), automaticity is a function of two critical factors: frequency (how often the behavior occurs) and perceived utility (how rewarding the behavior is in the eyes of the user). Products and business models with a high level of frequency and a high level perceived utility are best positioned to build automaticity.

 Internet searches occur at a high level of frequency. According to Comscore, Americans conducted 17.1 billion core searches in June 2012. Google accounted for 11.4 billion searches and dominated the U.S. internet-search market. In class, Nir explained that Google was very effective developing user habits and building customer loyalty for Google’s search engine. Even if Bing and Google are nearly identical in utility, switching requires too much cognitive effort. 

People do not shop online as often as they perform internet searches, but Amazon provides such a high degree of utility that people form the habit of browsing Amazon when they feel bored. 

In his blog post Getting Your Product into the Habit Zone, Nir explains how companies like Google and Amazon have successfully converted people’s searching and shopping behaviors into user habits: 

Established companies like Google and Amazon, along with new entrants like Pinterest and Reddit, succeed by creating user habits. They help people find what they are looking for amid the ever-increasing online clutter. In return, users reward them with engagement and loyalty, turning to them as their go-to solutions in their respective categories. When a habit is formed, the script for what to do next is written, making the behavior more likely to occur in the future. These companies leverage habits to earn their places in users’ lives and minds. 

In my next post, I’ll share different frameworks on how companies can develop habit-forming products. 

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Karen Lee is the Social Web Strategist at the Stanford GSB. She blogs about social media and business research at karenpoilee.tumblr.com and tweets from @karenlee.