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- [00:01]
A
One of the fastest growing companies of the past decade isn't like the other fast growing companies. It's not a technology provider, it's not a social media giant, it's not an AI company. No, this company sells food. And it grew not through technological innovations, but psychological interventions.
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B
But I think there's also, as you said, two psychological elements that I believe led to their success.
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A
Keep listening to hear the two behavioral science tricks HelloFresh used to become the world's largest meal delivery kit company. The world famous blogging site Tumblr had a problem. To succeed in marketing, they needed to move quickly. They needed to create content that was trending. But their marketing team was stuck waiting for engineers to build out every email campaign. That was until they switched to HubSpot, HubSpot's customer platform to send trending content to millions instantly. Rather than waiting for the engineers, they could use HubSpot to send all their email comms as efficiently and as effectively as possible. And the result? Well, they have tripled their engagement while doubling the output they produce. If you want to move faster like Tumblr, then head to HubSpot.com today I'm talking with the author of the book why did you'd buy that drink?
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B
My name is Mehdi Bouhasun. I wrote a book which is called why did you buy that? The surprising science behind everyday purchases.
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A
For the book, Mehdi researched HelloFresh, one of the world's fastest growing companies from the past 10 years.
- [01:43]
B
HelloFresh is a very successful company. It is a meal delivery kit.
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A
For those of you who haven't heard of HelloFresh before, here's an ad from the company describing exactly how it works.
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C
HelloFresh is the easy way to cook delicious meals at home. All the ingredients you need to make them are delivered to your door. You don't have to worry about meal times. You spend less time shopping and you'll become a household hero.
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A
You'll become a household hero. That's what HelloFresh claim. But that's not the reason they've grown so fast.
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B
I was originally born in 2011 in Germany, and this was a time when we are consumers very much torn between how much time we have to cook and get nutritious meals with fresh ingredients. The only options we have as consumers is to either have a large investment in time and also in money, or to have microwaved foods, ready meals and fast foods. Three entrepreneurs, Dominic Rishter, Thomas Grizzle and Jessica Nilsen, they started jotting down their vision. They wanted to have Something that would be delivered to you and that would be a kit, a meal delivery kit box where you would have all of the ingredients and also all of the information for you to efficiently have a fresh homemade meal made by yourself.
- [03:05]
A
Here's the CEO of HelloFresh, Dominik, presenting his company's vision.
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D
So with HelloFresh, the vision that we have is to really make home cooking accessible and to say that if you are someone who can commit to cooking at home, we want to make it as easy as accessible for you to actually do that and basically take all the hassle out of it.
- [03:24]
A
I think this sounds fine. Not dramatically innovative, not even particularly. New meal kits have been around for decades. And yet, despite this maybe fairly standard sounding vision, this company became incredibly successful.
- [03:40]
B
And they were certainly into something at a time because in their first year of business, they generated $2 million, well, 2 million euros, I should say, in revenue. Ten years later, in 2021, I think now most people would know this company and they stand at $6 billion. Well, 6 billion euros.
- [03:59]
A
And it's not like HelloFresh had no competitors. There are 382 other meal delivery kit providers in the US alone, but HelloFresh dominate the market.
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C
This graph shows the share of sales in the U.S. between the major meal kit companies in 2022. Sun Basket and Marley Spoon Inc. Have 2 and 3%. Blue Apron and Home Chef took 6 and 12%, while HelloFresh and its subsidiaries ate up 78%.
- [04:27]
A
That was the Wall Street Journal reporting on what Medi calls scam, like growth from the company.
- [04:33]
B
Typically, when you hear that type of growth, it's a crypto scam, you know, in percentages, it's, I think, in the hundreds of thousands of percent over that period of time. So very impressive, dramatic growth.
- [04:45]
A
But this wasn't a scam. Instead, Hel Fresh leveraged two very simple psychological biases.
- [04:53]
B
But I think there's also, as you said, two psychological elements that I believe led to their success. I think the first one is what we sometimes call the IKEA effect. The idea that if you put a lot of work into something, you attach more value to that particular product or service that you get is that you take time to cook your own meal. Fair enough. It comes as IKEA does as a kid and with instructions. But at the end of the day, you did put some effort into it. And I know you had Rory Sutherland on the show, and I remembered him mentioning Betty Crocker instant cake mix that originally did not work because people thought it was a bit cheating. To have all the ingredients and have very little steps. And so they decided to remove the powdered eggs. And so you had to add your own eggs so that you felt like you were really. And I think it comes from there, right? There's this idea that if you do it yourself, it's a bit better and you feel better about yourself as well.
- [05:53]
A
Rory Sutherland was of course referencing Mike Norton's 2012 paper titled the IKEA Effect. Norton gives the example of Betty Crocker in the introduction to the paper. There's anecdotal evidence that the early version of Betty Crocker cake mix where the customers only had to stir the flour based mix with water, well, that this early version, it just wasn't successful. It didn't take off, it didn't drive sales. It definitely wouldn't have made Betty Crocker the company it was today. Fortunately for them, researchers at Betty Crocker conducted customer interviews and found that many buyers felt like the cake mix was simply too easy to bake. They assumed that it couldn't be a nice tasting cake because it took no effort to create. So the product designers at Betty Crocker added what they called a largely irrelevant but psychologically powerful extra step. They asked customers to crack an egg into the cake mix. This didn't change the flavour or the rise of the cake. It simply replaced the dried egg in the pre mixed formula. It also made the cake mix slightly more effort. You had to go and buy eggs as well as the cake mix. However, it worked because it changed customer perception. That extra bit of effort made customers value their creation far more and sales of the cake mix grew dramatically. Mike Norton and his colleagues went on to test this phenomenon in studies with Ikea cabinets and origami. They found that time and time again people valued products more if they'd put more effort into creating it. Which makes a bit of sense for Hellofresh. You are cooking a meal after all. But it only makes hellofresh better than say microwave meals or pot noodle. It wouldn't make hellofresh preferred compared to a normal home cooked meal. To compete with home cooked meals, HelloFresh leveraged a very different behavioral bias.
- [07:44]
B
I think the second one is the idea that we need surprise and diversity in life having like hellofresh did, meal delivery kit that is delivered to you that you have no knowledge of. You don't know what food you are going to get. Especially at the beginning, you're not sure how it's going to turn out once you cook it. You don't know it's not like going to your usual takeout and you know exactly what you want and you've had it a hundred times. Now, this is a bit of a surprise. This is a bit of diversity. This is a bit of uncertainty. There is this inherent need for novelty and surprise and diversity and experimentation in consumers. And I think HelloFresh tap into that.
- [08:23]
A
When hellofresh first started, there was a lot of customer surprise. You'd order your kit, set some preferences around diets and allergies, but you would have no idea what meals you would receive. Opening the kit at the start of the week triggered a lot of curiosity and surprise. You wouldn't know if you were eating an Indian cuisine, Mexican cuisine, Italian cuisine. And that was the case with HelloFresh for many, many years.
- [08:46]
B
At the very, very beginning in Germany, you could pick almost nothing. So you would receive something, I believe it was once a week at the beginning. But you couldn't pick like today, where you may have an app and you know exactly what the next 50 meals are might be, and you can exclude different diets. And I would say the second aspect of that is that the meal does not come fully made to you. So there is this whole element of you need to turn it into a real meal rather than a group of ingredients, and you don't know exactly how this is going to turn out. It might depends a little bit on your skills, a little bit on how you decide to cook the meal, how fast, and so on.
- [09:27]
A
Now, like Mehdi says, this surprise with HelloFresh has today almost been entirely removed. Today, when you order hellofresh, you know exactly what meals you're going to get. So why did they get rid of this psychologically powerful tactic? Well, there's a good reason, which we'll tackle later on, but first let us cover why this tactic is so effective, why surprising meal kits were so successful to begin with. In his book, Mehdi cites research from 2023 that studied why surprise can be so irresistible to consumers.
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B
So this research you mentioned from Bucelli and Lee was published a couple of years ago. And in the article they wanted to look at the inherent need for surprise, and they call that the mysterious consumption aspect. And HelloFresh is one of the examples they mentioned, but they mentioned others, such as Birchbox, which is for cosmetics, and FabFitFun for home runs. They also mentioned one that was interesting to me from hotels where you select a typical holiday you're ready to pay for, but you don't know exactly what hotel you might get in the END this is the key point of this paper is that the literature has been overly focused on the negative side of uncertainty, but in fact there's a positive side. And that's why we wrap gifts at Christmas. That's why we sign up for guided tours where we don't exactly know where we're going. And in some instances uncertainty and letting life play out has positive benefits to the experience of consumption.
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A
Buchel and Lee ran studies to prove this.
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B
They've done a few studies, one of which is with ice creams. They had this ice cream van offer two options to people. The first option was you could get a free ice cream but you had to pick from the three top flavors which are strawberry, dark chocolate or salted caramel. Right? Those were the overwhelmingly preferred flavors. The other option you could have is you also get free ice cream but you will not know the flavor exactly. We'll present to you 10 flavors and you will receive one of those flavors.
- [11:30]
A
In the non mystery option they could choose between one of the top selling flavours which were dark chocolate, strawberry or salted caramel. In the mystery choice they would get a flavour drawn at random from a selection of 10 flavours. This included, you know, the top sellers like dark chocolate, strawberry and salted caramel, but added many more Vanilla, butterscotch, scotch chocolate, mint, etc etc. It's a bit irrational to pick the mystery option as there's a good chance you'll end up with a flavor that you don't particularly like. Picking from one of the three best sellers is probably better off. You know what you're going to get. However, that is not how most people behaved. It's not what most people picked.
- [12:11]
B
What they found here is that people tend to pick the hey I want 1 out of 10 option. 75% of the time.
- [12:20]
A
Participants preferred to be assigned a random pick between 10 flavours rather than choosing their favourite pick from the three top selling flavours. Statistically this was a big win for the argument that surprise and mystery can motivate consumption. In the control, 80% of people picked a best seller but in the variant the majority ended up with a non best selling ice cream. As Mehdi writes in his book, the study proved the people prefer the gamble. But Bachel and Lee weren't done there. They followed up with a second study.
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B
Here's what they did. As a lot of studies are done, it's with students from the University of South Carolina. They were going through exam period. It is a stressful time and so what they designed here is to have a table outside of where the exams are taking place and to say, hey, we'll give you a stress ball, essentially for free.
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A
Exam students could pick from a standard looking stress ball, one with a smiley face on it, or a third which looked like a globe.
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B
And next to it was a brown bag with a mysterious design hidden from view. So this design, you don't know what it looks like. You have no idea. You're not told that it's gender neutral, you're not told that it has great rating, you have literally no information about it. 89% of those students picked the brown.
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A
Bag rather than picking the option they liked. Nine out of ten students preferred the surprise. Uncertainty seems to be preferred when picking ice cream and stress balls. But would it work for more important decisions? Decisions like picking a hotel to stay at on your next holiday?
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B
They took 142 undergraduate students and in that case they were shown 20 hotel options. And out of those 20 hotels that were all fairly comparable, they were all good hotel you might want to stay at, they had a choice between one and they could pick that one or a randomly selected one from the list of 20. And here again, 69% of students, they picked the draw rather than the hotel they were shown.
- [14:24]
A
It's really worth highlighting here that participants aren't willing to stay in a bad hotel. All of the 20 options were good options. Instead, because they were all good choices, the participants preferred a hotel surprise. And it wasn't just with hotels, stress balls and ice creams. But Buchel and Lee proved it with songs as well.
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B
They took in that one 125 students, and they were shown 50 popular songs that you and I might know.
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A
Tiny dancer by Elton John, Bohemian rhapsody by Queen, songs like that.
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B
And they were asked which song they would watch if they came up on YouTube. And that gave the professors a list of songs that people liked. All of the choices are great. Before they show any of the songs, they make sure the students like those songs. And after that they said, hey, you'll have a little task where you need to listen to the song and watch the video and then you need to describe it. In that case, again, they were giving a song to say, hey, you can have this song here that we selected for you, or you can randomly have a draw of a song from the list of the ones that you've already said you like. And here again, 81% of participants, they picked the draw for another song rather than the one that was selected for them, giving that they said they liked all of them. So it's not about they liked one and they didn't like the other. It's just that in that case, they wanted to have the draw and see the uncertainty and what would be taken out for them.
- [15:55]
A
In total, the paper provides eight separate studies, all outlining examples where customers preferred surprise over certainty. It's convincing, and it's not entirely novel. Loyal listeners of Nudge will know I've spoken about this phenomenon before on the show. It's known more widely as the variable rewards effect. First studied by Skinner and his pigeons back in the late 1940s, variable rewards are extremely effective at persuading they make ice cream more popular, influence hotel picks, song choices, and they made HelloFresh one of the fastest growing companies. But there's a problem with variable rewards. They won't work forever. And you'll find out why after this short break. Frictionless Growth Marketing, hosted by Sonja Thompson, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals on the show. Each episode reveals how modern brands grow by removing the friction in their marketing and customer experience that pushes customers away every single day, often without leaders even realizing it. Each episode delivers practical insights, real brand examples, and conversations with marketing leaders. So after this episode is over, go and listen to Frictionless Growth Marketing wherever you get your podcasts. Every idea starts with a spark, that moment of inspiration that fuels brilliant strategy. But what if you could find it instantly? Meet Agent Spark, your human insights assistant from gwi. It delivers fast data backed audience intel so you can get inspired, sharpen your thinking and build campaigns around real consumer behavior. And you'll receive fresh insights in seconds so you can validate hunches on your target audience and make smarter decisions. Backed by rock solid data ready to spark your next big idea? See it in action@gwi.com spark hello and welcome back. You are listening to Nudge with me, Phil Agnew. We've heard how uncertainty and surprise made HelloFresh a roaring success. Customers flocked to it. The model worked worldwide. There's just one problem. Curiosity and surprise are great for luring customers in, but it's not so great for keeping them. Here's a clip from the aforementioned Wall Street Journal video highlighting that point.
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Despite industry wide growth, the meal kit model faces an obstacle you of all the people who tried one of five major meal delivery services in 2022, about 90% cancelled their subscription by the end of the year.
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A
Nine out of 10 customers cancel within 12 months. 50% of customers quit after just two months. Customers get bored quickly. The surprise and curiosity wears off, and the vast majority ditch the subscription almost immediately. And Buchel and Lee give a glimpse into why this happens.
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B
In their paper, Bocelli and Lee introduced this concept of horizontal and vertical differences. Horizontal differences are differences that differ as a matter of taste. So it's about colors, it's about design, as the stress ball case was, for example. It's about anything that does not impact the fundamental value of the product. On the other side, the vertical differences are differences that differ in objective superiority. So if I give you an example, it's the difference between a white iPhone 17 and a black iPhone 17 for a horizontal difference, and an iPhone 17 and an iPhone 17 Pro are vertically different.
- [19:40]
A
Or you could say that buying HelloFresh once is essentially a horizontal difference, but sticking with them for all of your meals for up to a year, well, that's more of a vertical difference.
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And what the authors of this paper found through their research is that when consumers were in a position of choice between horizontal differences, so differences that did not impact the objective value of the products, they were happy to embrace some uncertainty and have a fun gamble. However, when the differences were vertical, where they would clearly be losing out between one option or another, they did not enjoy mystery and prefer to know exactly what they'd be getting.
- [20:21]
A
HelloFresh grew at an almost unprecedented rate, partly because they embraced mystery. The surprise hooked new customers in, luring them to sign up. But once you received your first kit or your second kit, that surprise starts to dissipate. Customers start to know what to expect, and the intrigue fades. This is the catch 22 for meal delivery kits. The surprise and delight draws customers in. But to keep customers, you need not a horizontal gimmick, but a vertically superior option, something that HelloFresh and its competitors have struggled to achieve.
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B
Mystery is great, and it brings essentially some color to our lives to not know what we want. But that does not mean that consumers are ready to be on the losing side of the stick in the end. That's how they the authors of the paper, that's how they reconcile the fact that consumers are risk averse. But they are also in favor of being surprised. They just did not want to be on the losing end of the gamble. But if the options were only horizontally differentiated, they didn't mind actually embracing uncertainty. And if the options were vertically differentiated, like an iPhone 17 again an iPhone 17 Pro, then they were very strong on making sure uncertainty was removed from that whole process.
- [21:42]
A
There's a simple takeaway for everyone listening. If you're creating a product or service where people don't need clear utilitarian reasons to pick it, consider adding some surprise and curiosity. This could be stress balls, songs, meals at a restaurant, or drinks at a pub. When the choice isn't consequential, customers are attracted to surprise and intrigue. When I was researching this episode, I was rewatching all of the early Harry Potter films with my wife over Christmas. Late one evening, While binging some YouTube videos, I discovered this very interesting BBC News interview with Barry Cunningham. Barry Cunningham is the publisher who first decided publish the very first Harry Potter book, the Philosopher's Stone. In an interview he did with the BBC, he said something that I found very interesting.
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I guess the story started when I got the manuscript one rainy night in Soho and I didn't know, of course, it had been turned down by 22 or something, other publishers. And I took it home and read it that night. People often say, how much do you have to read before you know something's good? Actually, I think, you know, after two or three chapters and I was just gripped, I was gripped by Harry's situation.
- [22:54]
A
He knew after just one or two chapters that he was gripped by Harry's situation. He knew he wanted to publish this book. Now, the World of Harry Potter is arguably so successful because it is filled with an incredibly complex amount of law and background. And yet it's very interesting to me that Barry Cunningham wasn't swayed by the law in the background. He was hooked up on just the first dozen pages. Why is this? What was hidden, those first chapters that made the book such a success? Eventually I found a 2001 BBC documentary with J.K. rowling where she very briefly explained how she wrote that first chapter. She's on the floor of her apartment showing the cameraman reams of notes, diaries, drawings and paper all filled with the information that she used to create the story. And in this segment, she shares this one bit of information that I think is very enlightening.
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Discarded first chapters of book one. I reckon I must have got through 15 different alternative chapters of book one. The reasons for which I discarded each of them were they all gave too much away. And in fact, if you put all those discarded first chapters together, almost the whole plot is explained.
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A
It's just 20 seconds of audio from an hour long documentary. Yet I think that that one insight might be the key to Harry Potter's success. J.K. rowling explains that she rewrote that opening chapter 15 times. And each time she gave less and less away. She made more of the storyline opaque and more of the storyline unclear. This, of course, creates curiosity and intrigue. It hints that there is more to learn, more to be uncovered. It's what made the publisher, Barry Cunningham, hooked after just one chapter. It's that horizontal difference that makes stress balls and ice cream more popular. It's the element of surprise. And I'd wager a pretty decent bet that the entire Harry Potter universe would be entirely unknown to anyone but J.K. rowling if she had not rewritten that first chapter. If she had kept the chapter that revealed too much about Harry's story, there would be no mystery, no intrigue, and ultimately no Harry Potter. That is all for today's episode of Nudge. Folks. Thank you so much for listening. And thank you to Mehdi for joining me on the show. If you enjoyed his insights, you will greatly enjoy his book why did you buy that drink? Rory Sutherland called it a wonderful book exploring the never ending dance between marketers and consumers. I've left a link to the book in the show notes if you want to pick up a copy. So now, just before you leave, I'd like to share that every week I send my 10,432 newsletter subscribers a Friday surprise. During the week I spend 18 hours finding the best behavioural science advice and tips and insights and I summarize it all into an easy to read Friday newsletter. It is entirely free and covers a totally different topic each week. It benefits from that horizontal difference in that you never know what you're going to learn about when you open that email. But I guarantee you will learn something. And I also guarantee that you'll stay subscribed for longer than most hello fresh customers. So if you are interested in getting more from Nudge, go and subscribe to my newsletter. Just head to nudgepodcast.com and click newsletter in the menu that is nudgepodcast.com and click Newsletter in the menu. In every single email I provide a very easy link for you to unsubscribe in just one click. So if it's not for you, you can unsubscribe straight away. That is all from me. Thank you so much for listening. I've been Phil Agnew your host and I'll be back next Monday for another episode of Nudge. Cheers.