In the Loop: How To Utilize Engagement Loops to Increase Profitability

When Facebook bought virtual reality powerhouse Oculus for $2 billion in 2014, VR was at the bleeding edge of entertainment tech, promising to leverage the graphical fidelity of high-end gaming computers and immersive VR hardware to elevate and redefine home entertainment.

Fast forward six years later and VR is still struggling to make a splash. Despite a record-setting rise of new users following the recent release of a much-anticipated killer app, Steam reports that less than 2% of their players use VR headsets regularly.

The video game industry made $1.6 billion in revenue this past March, catching up to recent box office numbers as customers reassess their entertainment options while stuck at home. After so much attention and innovation, VR should’ve had its moment. So what happened?

One possible explanation: the difference between interest and engagement. Although many video game console owners were curious about VR’s capabilities and novelty, this interest didn’t translate into sales due to high initial costs, a narrow variety of games, and limited hardware availability. In a nutshell, VR gained the industry’s interest, but it couldn’t convert that same interest into a sustainable, engaged user base.

Ask yourself: how can you convert interest towards your product into regular engagement?

One possible solution: engagement loops.

engagement-loops

Engagement loops are typically defined by the five steps regular users go through while interacting with a repeated-use product:

  1. Curiosity: Whether through word of mouth, a televised advertisement, or the fruits of a late-night browsing session, potential users can be introduced to your product organically through a wide variety of means.
  2. Eureka Moment: This is when your product “clicks” with the user. Maybe it happens when they complete a transaction with unexpected ease, or when they understand that your product can resolve a persistent issue they’ve been experiencing.
  3. Value Exchange: This occurs when a user trades their time and/or money for the service provided by your product.
  4. Trigger: This is anything that pushes users back towards your product after the initial value exchange. Think of a coupon code sent to a user’s email account, or a conveniently timed social media advertisement.
  5. Social Proof: If a user is especially satisfied with a product’s services, they will consistently return to the product in the future and spread curiosity to other potential users, starting the cycle anew.

Engagement loops are valuable business tools that can help you better understand how customers interact with your product, allowing you to streamline the user experience and retain first-time users. As you know, retaining customers can drive exponential growth, resulting in vastly increased profitability in the long run.

One concept that can help you refine your engagement loop is gamification, or the process of introducing customers to creative incentives that will reward repeated engagement with a product. Let’s look at an example of gamification at work.

honey-extension-overview

Source: Honey

Honey is a free internet browser extension that automatically searches for available coupon codes before a user completes an online purchase. Users can also acquire “Honey Gold”, a unique currency that accrues each time the user completes a purchase. After 1,000 Honey Gold, users can cash them in for a $10 gift card to their favorite retailer.

Let’s map out Honey’s engagement loop:

honey-engagement-loop

  1. Curiosity: The user sees an advertisement for Honey and downloads the browser extension after reading through the company’s “About” page.
  2. Eureka Moment: The user is shopping online and reaches the checkout page. Just before entering their credit card info, a pop-up appears telling them that Honey has found a handful of coupons that can be applied to the purchase. In the end, the cost of the user’s purchase has been reduced by 15%. As you can imagine, the user is pleased.
  3. Value Exchange: The user completes their purchase, basking in the glow of an unexpected discount. Even though the user has invested no additional money and barely any extra time, the product has already incentivized their repeat usage by potentially reducing the cost of their future purchases.
  4. Trigger: After the purchase is complete, a pop-up notifies the user that they’ve accrued 200 Honey Gold. The user understands that further purchases through Honey will inch them closer and closer to a $10 gift card. Just like that, the user decides to use Honey for all their future online purchases.
  5. Social Proof: The user tells their friends about Honey and urges them to download the extension. Soon, their entire family is mining for Honey Gold.

By creating a unique internal currency and incentivizing users to passively gain Honey Gold, Honey has gamified the way users interact with their product. The results speak for themselves: Honey currently has 17 million monthly active users and, late last year, PayPal agreed to buy Honey Science Corporation for $4 billion, their largest acquisition to date.

Armed with your product’s engagement play type and North star metric, ask yourself how you can develop an effective engagement loop.

  1. How can you best lead users to their own “Eureka!” moments and emphasize the unique value exchange that your product facilitates?
  2. What triggers can you implement to reinforce repeated engagement after a user’s first value exchange?

By gamifying an otherwise unexciting process, you can increase your number of repeat users and exponentially expand your digital product’s reach without having to completely retool your product.

If you’re having a tough time keeping your users engaged, there’s no need to reinvent the wheel when a loop will do just fine.