Retention Masterclass - Simple Frameworks for Fixing Retention Problems

Issue 29

Good morning,

A couple of weeks back, I surveyed the newsletter readers to publish video content on Youtube actively. The results are out 🔥

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Creating content around concepts written in the newsletter (complex ones) and career advice sounds a good start. For now, I will publish one video every week. The first video drops next Wednesday on this channel. Check the YouTube channel if you haven’t

Check the Youtube Channel

Off to the topic at hand,

It’s hard to write an essay on how to fix retention problems. There is a lot of good-sounding advice on the internet. You can create a plan around it, but as Mike Tyson said about plans.

Tallenge - Mike Tyson - Everybody Has A Plan Till They Get Punched in The  Mouth - Large Poster Paper - Framed (24 x 34 inches) - Multi Colour: Home & Kitchen

Just as every fight is different, every product retention problem is different. This is why despite so many good sounding plans around ‘how to fix retention and product-market fit,’ most companies fail because of retention and lack of PM/F.

How do you prepare for a punch in the arena? You do it by learning and practicing the fundamentals of boxing. You look beyond your discipline, do cross-training, and pick on different skills. In the end, be ready to be knocked down, and have the courage to stand up.

Like boxing, the solution for retention also starts with recognizing that it is a hard problem to solve. We should learn the basic tools for solving this problem — positioning, PM/F, analytics, models, etc. All the essays I have written so far at Growth Catalyst need to be applied while solving retention. Retention is The Endgame 🎯

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The Problem with Bullet Points

You will notice that all the top essays in google results around fixing retention have the same list of bullet points. The problem with many bullet points is that they miss the problem's context and become a massive to-do list. They also don't help you think deeply about the problems.

As David Epstein writes in his book Range,

“Whether chemists, physicists, or political scientists, the most successful problem solvers spend mental energy figuring out what type of problem they are facing before matching a strategy to it, rather than jumping in with memorized procedures.”

Instead, if you start with a few key things from first principles, they are very effective. They are easy to remember, argue, and think. We are going to cover 3 key frameworks to fix retention woes.

Framework #1: Fogg’s Model to Build Behavior

What we are trying to do is change the behavior of the users to improve retention. To change the behavior, we can pick a few theories from behavior science and see how they apply in improving retention.

Let’s start with the basic question — what causes a particular behavior? The model that explains it is developed by BJ Foggs, who built the Behavior Design Lab at Stanford University. He and his team research human behavior and how you can influence it to achieve business goals. 

The Fogg Behavior Model shows that three elements should converge simultaneously for a behavior to happen: Motivation, Ability, and a Prompt. When a behavior does not happen, at least one of those three elements is missing.

With ample motivation and ability, the prompt shapes our behavior.

For example, when you receive a notification about a discount on a product you have been thinking of buying, you always check it out. The motivation, in this case, is high. Checking out the offer doesn’t require much effort, so your ability to do it is high. The notification is the prompt or trigger.

You may have come across apps that send a lot of notifications. An example is the notifications we get on the Facebook app nowadays. The novelty of such notifications is lost for some of us because FB bombarded us with irrelevant notifications about Candy Crush for years 😈 As a result, we have lost the motivation to check it out, so the behavior is different in this case.

Please note that prompts succeed only when either one of the factors is very high, or both are moderate. It fails when both are low. An example to this would be IRCTC website. Even if it’s not simple to book a ticket there, the motivation is super high to book a tatkal ticket and you take all the effort to book it.

Now that you have understood the basic definitions, let’s dive deeper into these factors to see how they can be applied.

Motivation — There are three core motivators for humans

  1. Sensation: pleasure or pain

  2. Anticipation: hope or fear

  3. Social: social acceptance or rejection

Here are some products representing different motivations in the table.

Ability — Ability refers to how simple it is for someone to do something at a particular moment in time. The simpler it is, the higher the ability. Fogg outlines six ways that a task can be made simpler.

  1. Time - Reducing the time required

  2. Money - Reducing the money required

  3. Physical effort - Reducing unnecessary physical effort.

  4. Mental effort - The lesser the cognitive load, the easier it is

  5. Social deviance - Ties to social motivation. No one wants to be the outcast.

  6. Habitual - Habitual things are easier; non-habitual things are harder.

Examples of different ways products improve the ability to do something.

The above is an image, and the Read More links in the table are here — Time, Money, Physical Effort, Mental Effort, Social, Habitual.

Prompts — Prompt is simply a reminder. This reminder can be a push-notification, in-app notifications, an ad while scrolling social media, or watching YouTube videos.

You can add extra motivation or ability through prompts, like adding a discount (money) coupon or telling the user how many people are already using the product (social).

A lot of products give extra coupons to users who have churned out of the system. This is a prompt to come back while solving for the ability+motivation. Check out this email you receive from Fotolia (now Adobe Stock) after you don’t log in for a few months.

incentivize customers to continue using products

Fogg’s Model and Product Retention

Let’s now look at some of the key strategies we can employ to improve product retention. You will notice that a single strategy ties to multiple motivation/ability factors. For example, suppose you show users that 100,000 users have bought your product. In that case, you are making it socially acceptable to use the product and also makes it easier for them to make the decision (reducing user's mental effort).

The idea behind discussing these pointers is to show how we can develop various ideas using the simple B=MAT model.

Retention can be increased by

  • Acquire the right kind of users — Acquire the users who have the need and capacity to pay. Look carefully at your acquisition channels and user profiles. Stop acquiring from channels that don’t give you sticky users. Stop acquiring groups (age, gender, geography) that don’t stick with the product.

  • Bringing users to their ‘Aha! Moment’ — If the product solves one of their problems/pain points, and the user realizes it, they have a higher motivation to stick with your product. This can happen through the right onboarding experience.

  • Build delightful experiences — A good design is soothing to our eyes. We associate good design with trust as most things that look good are also good. Apple is a prime example of this. Airbnb photos case study, as mentioned in the last post, is another example of this. Ties to pleasure.

  • Add social proof — Adding how many people are already using your products, ratings, and reviews from end consumers can drastically improve activation and retention.

  • Mobile apps versus website — If your products have daily usage, launching a mobile app can increase users' ability to check the app whenever they want as the mobile phone is just at an arm's length. It’s also possible to send prompts on mobile apps, compared to websites.

  • Offering product at a price the TG is comfortable with — Sale events increase overall purchase/retention from consumers as there is a fear of missing out. The price also becomes reasonable for an additional cohort. This is why you see sale events across the globe.

  • Minimizing effort — If you are a Kirana shop or a website selling physical items, you should provide doorstep delivery to reduce the users' effort. Add to that easy returns, multiple payment options including cash-on-delivery, easy to order through Whatsapp versus calling, etc. and you have a huge improvement in retention coming your way. No wonder people are so bullish on e-Commerce and WhatsApp. This is also why malls work better than standalone shops. You don’t have to travel much to go through different shops in a mall.

  • PNs and In-app notifications — Make a cocktail of prompts, ability, and motivation through PNs.

  • Make it harder to churn — Though not advisable, many companies try to make it harder for the user to churn. Few give you a special discount when you are trying to churn like Fotolia in the example above. Few others don’t offer cancellation through a single click, but make you go through a tedious process. It may lead to short term retention and growth but hurts your brand and trust in the long run. Try canceling cable :)

  • Social sharing — Building social share in an app works wonders because it acts as a prompt and social proof. Just ask PinDuoDuo, a $100 B startup out of China. From YC piece on PinDuoDuo,

    The core of the Pinduoduo experience is team purchase, where buyers form a group in order to receive discounts from suppliers. The user experience, as laid out in the graphic below, is as follows: (1) for each item, merchants decide two prices – one for individual purchase and one for team purchase. If the user opts for a team purchase, he or she may either (2.1) initiate a team purchase, or (2.2) join an existing team purchase. If the user has initiated a team purchase, he or she may use social platforms such as WeChat to proactively encourage friends to join their team (3.1) or more passively wait for other buyers to join the purchase on the Pinduoduo (Pinduoduo) platform (3.2). A team needs to be formed within 24 hours to have the order confirmed. Once a team is formed, the purchase is confirmed and the product is shipped within 48 hours.

    Nearly all Pinduoduo transactions are completed using team purchase. In the early days, the size of many groups was large (e.g., 10+), but as Pinduoduo has scaled the group size requirements have declined. Team purchase is beneficial to both buyers and manufacturers; buyers benefit from better prices for goods they want and sellers benefit from increased demand and better visibility of future demand. In addition to driving down prices, team purchase helps solve the “trust deficit” of retail in China’s developing cities, where more than 80%5) of retail is unorganized and consumers rely heavily on social recommendations to initiate transactions.

We have now explored a few methods to increase retention. There are numerous others and what will work for you depends on the user personas and the product you have. Once you have identified retention problems, it becomes easier to see them through the B=MAP lens and solve it.

We will study many more methods in the next 3 months, covering experimentation, mental models, user psychology, and gamification.

Framework #2: Super Apps to Improve Retention

Like the malls, the case for a super app can be built to increase retention using the same analogy. If we build up for more use cases, more people will come and retain. China has shown the world that it works through WeChat. However, it hasn’t been successful anywhere else, especially in the US and India. The effort to build a Super App fails because the US has a diversified internet ecosystem. In India, the same players are operating. When smartphones arrived in the US, there were already giants in search (Google), eCommerce(Amazon), and social space(Facebook). This made it difficult for any one player to succeed. China was a mobile-first country as when smartphones arrived, only 16% of the country's population was on the internet in 2007.

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As China had already seen mature companies in the US in different sectors like digital payments, eCommerce, and chat, China's big tech-focused on building a super-app ecosystem by using their dominance. Let’s look at the timeline of WeChat

2011: WeChat launched as Tencent’s mobile-only messenger. 100m users

2012: Official accounts from stores and brands with QR code support and features to connect offline-to-online

2013: Moments (like Facebook feed) launched. 300m users. WeChat Wallet and mobile payments also launched

2014: Partnership with apps like ridesharing app Didi Chuxing, for the online retail marketplace. WeChat stores launched for any business to open a store within WeChat. More than 100m registered Wallet users.

2015: More than 1 billion in spending on red envelope gifts, subsidies, coupons, and incentives for users to adopt the WeChat Wallet.

2016: Bike-sharing within WeChat.

2017: WeChat Mini Apps/Programs feature released. Search engine features are released to go through all WeChat content. Subway system integration.

3-4 things worked for WeChat and failed to work for others.

  1. WeChat didn’t face the regulatory hurdle that Microsoft did back in 2000 when they got an anti-trust case filed against them. Part of the reason is that governance is very different in the US and Chine. Maybe, Microsoft could have done it if not for their anti-trust woes.

  2. Unless you take a sizeable market in an industry in the internet era, it’s hard to build a sustainable business. As you can see through the timeline of WeChat, it becomes clear takes money, time, and effort to dominate different industries.

  3. If the position is already occupied by equally powerful apps in the user’s mind, it will be even harder to displace that. This is a stark difference between a mature market like the US, where multiple strong apps dominated different industries, and an early market like China back when Smartphones exploded in 2007-12.

But don’t despair; we can learn something from Super Apps when it comes to retention. We can always solve adjacent problems and give users more reasons to come back. For Swiggy, it’s grocery and alcohol delivery. For Zomato, its food delivery. For Microsoft, it was cloud and productivity software.

Framework #3: The Dark Science of Getting Users Hooked

I couldn’t write a better introduction to get users hooked, so loaning this from the 1843 magazine.

In 1930, a psychologist at Harvard University called B.F. Skinner made a box and placed a hungry rat inside it. The box had a lever on one side. As the rat moved about it would accidentally knock the lever and, when it did so, a food pellet would drop into the box. After a rat had been put in the box a few times, it learned to go straight to the lever and press it: the reward reinforced the behaviour. Skinner proposed that the same principle applied to any “operant”, rat or man. He called his device the “operant conditioning chamber”. It became known as the Skinner box.

When B.F. Skinner performed further experiments with his box, he discovered that if the rat got the same reward each time, it pulled the lever only when it was hungry. The way to maximise the number of times the rat pulled the lever was to vary the rewards it received. If it didn’t know whether it was going to get one pellet, or none, or several when it pulled the lever, then it pulled the lever over and over again. It became psychologically hooked. This became known as the principle of variable rewards.

Why does the variable reward gets the rat hooked? Dopamine.

Dopamine is a chemical produced by our brains that plays a big role in motivating behavior. It gets released when we take a bite of delicious food, when we have sex, when we exercise, and when we have good social interactions.

The human brain contains four pathways in which dopamine is produced (not getting into detail). All pathways become active when anticipating or experiencing rewards. Anticipation is the key here, which often happens when you do certain activities that result in rewards. For rats, the action was pulling the lever that built the anticipation. Every time a response to a stimulus results in a reward, these associations become stronger.

The variable rewards are what makes pulling a lever in casinos so addictive. These rewards in the internet world could be a text message from a friend, a “like” on Instagram, or a Facebook notification about a friend request.

Nir Eyal’s book Hooked is based on these nuggets of behavioral psychology. He explained that to build a behavior, we need to think about the variable rewards, just like the Skinner box. More specifically, it works like a loop.

Let’s take the example of Facebook.

  • The trigger or prompts there is a push notification.

  • Action is clicking on that notifications and checking out the new info/details. Checking out new info gives you a dopamine hit.

  • Checking out the info/details sometimes gives you happiness, say when you gained many likes and comments on your posts, and sometimes it doesn’t. This feeling is variable rewards.

  • Submitting a post or photo and connecting with friends is the investment on Facebook. This increases your likelihood of returning.

Over time, you become addicted to dopamine, and whenever you are getting bored and need some motivation/dopamine, you open Facebook. It becomes an internal trigger then.

Many apps use this science of hooking users to their smartphones. It is a questionable practice, and now companies like Google have started working towards ethical design and well-being.

You don’t need to go to the extent of making users addicted to the app. You can do a couple of things to improve retention though

  • Build opportunities for users to get invested in your product. This will increase retention and also switching costs.

  • Use variable rewards to get users back to the apps. eCommerce apps providing different discounts in different weeks/months is a good example.

Few Things to Remember before We Wrap Up

Don’t ‘set it and forget it’ once you have cracked retention.

It would be best if you managed it actively. The first reason is that competition will always kill your retention as people can move to another product, which keeps shipping better features.

The second reason is that a new segment of customers will keep coming unless your product matures. This new segment might need something new. Even the same segment preferences might change in light of a shift in technology.

If you aren’t able to move the retention up

Don’t give up too early; wait at least a year before giving up. But you need to seriously give it a thought if you have been trying to improve retention for > 12 months and haven’t reached even local maxima.

Go back to the whiteboard and analyze the market, its need, and preferences after that.

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With this, I wrap up this week’s post. We will cover experimentation in the next few weeks.