Creating habit-forming digital products

Abstract

The aim of this thesis is to increase retention
for Picnic by creating a habit-forming store. Currently, conversion rates are suboptimal. In
areas where Picnic is active roughly half of all households downloads the app
and registers. However, the conversion of this group to active customers is
sub-optimal, meaning that not all users are retained. Sub-optimal retention
rates hurt companies, as they miss opportunities for business growth,
increasing their profitability and cost savings. This effects also holds true
for Picnic where it takes three orders to break-even on that specific customer.
Project context This thesis focusses on the Dutch market, as this is where
Picnic as its strongest presence. In addition to that, the Dutch online grocery
market is the most advanced in Europe. This thesis focusses mainly on the
competition with physical supermarkets because the growth of the online
groceries segment stems from consumers switching from physical supermarkets to
online grocers. Increasing the retention rates has a positive impact on the
users of Picnic and society as a whole: It increases the amount of free time
for users, reduces food waste and emissions in inner cities. Theoretical
foundation Retention Retention is driven by the perceived utility on one hand
and switching costs on the other. Both these dimensions are influenced by the
habits of users. Perceived utility increases as the users gain more experience
with the product, leading to a faster and more pleasant experience. Switching
costs are influenced by the investments a user makes in a product, and by
uncertainty about whether other companies can provide similar value. Groceries Groceries
are eminently a habitual consumption: They are high-frequency purchases Groceries have a limited variability over time Grocery
shopping is a behaviour that is learned over a long period of time Therefore,
the challenge of this thesis is to help more users successfully form a habit
around using Picnic, thereby converting into active customers.



Habits

Habits are formed when both frequency and
perceived utility are high enough. A habit has four elements: The trigger,
action, reward and investment. Currently, most customers fail in the action
element of the habit loop. This is due to either a lack of ability or a lack of
motivation.

This theory on habits and its connection is
visualized in the figure below.





User research

The theoretical framework was combined with
extensive user research to define what type of users currently are able to form
a Picnic habit.

The qualitative user research consisted of a
combination of interviews, workshops, user testing sessions, surveys and
concierge tests. The quantitative user research consisted of analyses of in-app
user behaviour data, purchase data, demographic analysis and market size
estimations.



Early market

Users that successfully form a Picnic habit,
and thereby form Picnic’s early market have both high motivation and high
ability to use the service.

The high motivation results from the users being
time-constrained, having physical limitations, and experience going to the
supermarket negatively. This group’s high ability is a result of their high
ability to plan, their relatively predictable life, and the guidance in food
they receive from recipes and diets. The majority of this group are families,
which are also the most profitable customers for Picnic.



Product strategies

By combining the insights from user research
with the theoretical framework, three product strategies were proposed that
help more users form a strong Picnic habit.

First more different types of users are enabled
to place orders by their increasing their motivation and ability. Once these
users are enabled to order at Picnic, their frequency of interaction is
increased. Finally, when these users are interacting with this app frequently,
users remain engaged by an app that improves with each usage-cycle. This
happens through both user- and Picnic- driven personalization.



Implementation of product strategies

These strategies must be embedded in the
store team and Picnic organization in order to be effective. In order to do so,
three organizational challenges must be overcome:

Challenges in aligning teams across the
organization,

Challenges in creating buy-in for
customer-focused projects

Challenges in autonomous decision making, due to
large dependencies between teams.



Product design framework

To deal with these organization challenges,
the strategies are translated into a product design framework. This framework provides the team with clear and
inspirational guidance while being concise and measurable for the rest of the
organization. This leads to companywide buy-in.

 

Validation

The framework was validated in two steps: In
sessions with customers and internally. The results of these validation steps
indicate that the framework is likely to be successful, but it can only truly
be proven by implementing it and putting it to the test.



Implementation

To achieve successful implementation, the
framework must be clearly communicated and embedded in the daily work of the
team. The latter should happen in both creative activities and evaluative
activities.



Conclusion

The framework helps the store team to set a
course for a longer period of time. It helps the team focus on solving the
right problems for its users, by providing a way to visualize these problems
and the effect the solutions should have. The vision and strategies provide the
team with direction and help stakeholders across the organization align. The
framework is not a definitive ‘how-to guide’ on building a habit-forming store,
and its implementation and the subsequent execution are crucial for its
success.