Hacking Customer Retention

How to increase customer retention using engagement loops

Photo: Ten Little — Stat: Frederick Reichheld

I was chasing my wild toddler around the park when my wife got a text message from Ten Little, a new E-commerce company founded by Fatma Collins and Julie Rogers that makes stylish kids shoes that are great-fitting and support healthy foot development.

The text message was sent to inform us that it may be time for our son to size up and remind us that we could quickly double-check using their removable insoles. Being the overly protective parent that I am, I immediately stopped our playing and removed his shoes to check, and sure enough, they were too small.

The text message also had the option of replying “YES” to skip the entire checkout process and automatically order the next size up using our previous billing/shipping information. That is precisely what we did since we didn’t want our son running around with his toes curled up in shoes that didn’t fit anymore.

As we were driving home, I couldn’t help but think to myself, “damn, that was the fastest I have ever repurchased anything from anyone.” This experience reminded me of two of my favorite books, Hooked by Nir Eyal and Hacking Growth by Sean Ellis & Morgan Brown, and inspired me to write this Medium story about hacking customer retention.

Hacking Customer Retention

How do you increase customer retention? Both Hooked and Hacking Growth do a great job of answering this question by showcasing how some of the most engaging companies increase customer retention by building habits around their products using engagement loops.

While not every product needs a habit, there is still a lot to learn from the consumer psychology principles that power these engagement loops. For example, you can take Nir Eyal’s Hook Model piecemeal to learn how to create better triggers, make actions more likely to occur, insert rewards, and create an investment that brings customers back.

Nir Eyal’s Hook Model

In this story, I will use lessons I have learned from both Hooked and Hacking Growth to demonstrate how engagement loops, such as the Hook Model, can be used to increase customer retention. I will do so by focusing on the four steps below while using Ten Little as a prime example.

1. Capitalizing on stored value to load the next trigger
2. Utilizing triggers to cue customers to take action
3. Making it easy for customers to take action
4. Rewarding customers for taking action

1. Capitalizing on stored value to load the next trigger

Companies with the opportunity to capitalize on the power of stored value have an advantage in increasing retention over time. — Hacking Growth, by Sean Ellis & Morgan Brown

Stored value comes from customers investing in a product. However, the investment isn’t about money; instead, the investment is about customers providing valuable data that companies could capitalize on to improve their product with use and utilize to re-engage with them by loading the next trigger.

The first step to increasing customer retention is understanding what bit of value your customers are providing that you could use to improve their likelihood of returning. If they aren’t providing any value, you should brainstorm different ways to add small investments into your product that you could then capitalize on.

For example, Ten Little’s secret sauce is in their predictive data platform, which capitalizes on new customer data to predict when it’s time for their child to size up next (loading the next trigger). This is done by comparing their child’s age and shoe size to appropriate growth curves.

Ten Little’s Stored Value

2. Utilizing triggers to cue customers to take action

A great rule of thumb about deploying triggers is that your rationale for getting in touch with the users should be to alert them of an opportunity of clear value to them. — Hacking Growth, by Sean Ellis & Morgan Brown

Triggers are prompts that cue customers to take action. Triggers can take the form of external prompts, such as email notifications, SMS notifications, mobile push notifications, calls to action, and word of mouth. Triggers can also take the form of internal prompts, such as emotions, situations, places, and routines.

To be successful at employing triggers, you need to make sure your internal and external triggers are aligned. To do so, you first need to understand who your customers are and what their pain points are (internal triggers); second, you need to know what they are doing before coming to your product and what brings them to you(external triggers). You can then attach the use of your product to their internal triggers and leverage external triggers to catch their attention and drive them to action.

Ten Little is an excellent example of how to use triggers properly. They utilize their predictive data platform to load the next trigger (SMS notification) and then send it to customers when it’s most valuable. This external trigger aligns perfectly with their customers’ internal trigger of not wanting their child to walk around with their toes curled up in shoes that don’t fit anymore.

Ten Little’s External Trigger

3. Making it easy for customers to take action

The trigger, driven by internal or external cues, informs the user of what to do next; however, if the user does not take action, the trigger is useless. To initiate action, doing must be easier than thinking. — Hooked, by Nir Eyal

Actions are what customers do in response to triggers and in anticipation of rewards. Dr. BJ Fogg, a behavioral scientist at Stanford University, developed a behavioral model to explain what drives these actions, which is represented by the formula B = MAT. This formula states that an action/behavior (B) will occur when motivation (M), ability (A), and a trigger (T) are all present at the same time in sufficient degrees.

Dr. BJ Fogg’s Behavior Model

In other words, to increase the likelihood of your customers taking action, there should be a trigger present, sufficient motivation, and the ability to take action. Since it’s easier to increase ability than it is to increase motivation, you should map your customers’ steps when using your product and identify ways to make it easier for them to take action.

In Ten Little’s case, they send a text message (T), which alerts the customer that it may be time for their child to size up (M) and makes the purchase process as simple as texting back a three-letter word, “YES” (A). What’s easier than that?

4. Rewarding customers for taking action

It’s important to experiment with offering rewards that are not about money or savings, but instead about the experience customers have with you product. — Hacking Growth, by Sean Ellis & Morgan Brown

This is where companies reward customers for taking action and reinforce their motivation for future actions. Most companies offer tangible rewards, such as savings, coupons, cash rewards, etc. However, the most engaging companies also offer intangible rewards, such as brand ambassador programs, recognition of achievements, customization of the relationship, etc.

If you want to build brand loyalty and increase customer retention, it’s key to improve your product’s perceived value by offering a range of tangible and intangible rewards. It’s also essential that the rewards you offer are tied to your specific product’s value and align with your customers’ internal triggers.

Ten Little’s size up recommendations is an excellent example of an intangible reward (customization of relationship) that perfectly aligns a product’s value with customers’ internal triggers. This marketing shift from the traditional one-to-many campaigns, to fully customized one-to-one experiences, is a great way to build brand loyalty and increase customer retention.

Ten Little’s Intangible Reward

Summary

Engagement loops are powerful tools that can increase customer retention but are also unique to each business, so you must map out your own based on your product’s core value. In doing so, you should ask yourself the following questions:

1. Stored value: what bit of value do your customers provide? Can you capitalize on this stored value to improve your product with use and load the next trigger?
2. Triggers: who are your customers, and what are their pain points (internal trigger)? What are your customers doing before coming to your product, and what brings them to you (external trigger)?
3. Action: what steps do your customers take when using your product? How can you make it easier for them to take action?
4. Reward: what rewards (both tangible and intangible) can you offer your customers? Do these rewards align the value of your product to your customers’ internal triggers?