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JOSEPH JAFFE

FLIP THE FUNNEL

How to Use Existing Customers to Gain New Ones

FLIP THE FUNNEL

FLIP THE FUNNEL

How to Use Existing Customers

to Gain New Ones

JOSEPH JAFFE

John Wiley & Sons, Inc.

Copyright # 2010 by Joseph Jaffe. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

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10 9 8 7 6 5 4 3 2 1

My dearest Terri, Amber, Aaron, and Jack. I love you all so much.

Contents

Foreword ix

Acknowledgments xiii

Preface xv

Section I Getting Priorities Straight 1

1 The Theory behind Flipping the Funnel 3

2 What the Recession Taught Us (AKA Returning to Basics) 11

3 Charity Begins at Home 17

4 Time to Spurn the Concept of Churn 27

5 Technology and Relationships—a Love-Hate Relationship 37

Section II A NewWay Forward 47

6 Time to Flip the Funnel 49

7 Politics, Shoes, and Insurance: Three Examples of Flipping the Funnel 81

8 The Key Is Customer Experience 97

9 How Employees Help Flip the Funnel 109

10 Customer Service as a Strategic Driver 121

11 The New Channels of Customer Service 157

Section III Making It All Happen 179

12 Transforming Mouths into Megaphones 181

13 To Incent or Not to Incent: Is That the Question? 203

vii

14 The New Customer-Activation Model: Content, Conversation, Commendations 217

15 The Economic Benefits of Customer Experience 237

16 Cultural Sell-through and Organizational Sign-off 247

17 Flip the Funnel for Your Personal Life 263

18 I Had a Great Experience—How about You? 269

Resources 275

Index 277

viii CONTENTS

Foreword

I had a simple question for eBay about one of their policies. A simple, specific question. So I sent them an e-mail. They sent me back an e-mail. It was obviously preforumulated, although it started with my name. That’s great. Awesome! They know my name! How did they do that? And it was a pretty great-looking e-mail. High-fives around the confer- ence room when they banged that one out. It was chock-full of helpful information, and there were so many different questions it could have answered. They probably thought it was super efficient, because you have one thing that does all these different things. Unfortunately, out of all the questions it answered, none of them was mine. I asked for an apple, they gave me an orange, and I’m supposed to be happy because it’s a fruit. Now, to make matters worse, after getting this non-helpful e-mail, I wrote back to say hey, you didn’t answer my question. They didn’t respond to this second e-mail, but they did sendme a survey. They wanted me to rate my interaction. And I’m like, awesome. So I’m going through this survey, checking off every box to say, ‘‘You guys suck, and you suck, and you suck and you suck.’’ And in the middle of the survey, it malfunctions. Their customer service is so bad that it even gets wrong me telling it how bad it is.

Processing is not solving. If a supposed solution uses automation to get through more of your customer input faster while fixing fewer problems, it’s not a solution, it’s a failure.

The reason why customer service is so horrible these days is that it is not a machine for making widgets. This hasn’t stopped businesses from judging it like it is. Companies see customer service as debit on the balance sheets. A call center is a cost center. Instead of seeing the future profits that can accrue from happy customers, companies want to cut cut cut. In the name of efficiency, people who can’t even understand the English words they’re speaking are representing brands in crucial customer engagements. Are you really going to abdicate the last mile of customer interaction, the one where most problems, and stories for Consumerist.com, of which I’m the co-Managing Editor, arise to a population of low-paid, disenfranchised workers with zero career potential within the company, no stake in the brand, and an average

ix

turnover rate of just a fewmonths? In the pursuit of next-quarter profits, too many companies have said ‘‘yes.’’

If you bought what you thought was a new microwave and came home to find the box full of wet towels instead of a microwave, you could easily say, ‘‘This is a rip-off.’’ It gets harder when you’re evaluating business practices. They come with bubbly corners, everything looks so pleasing and professional, everyone wears a tie, and all the ‘‘policies’’ are clearly explained in nanoscopic print. That doesn’t change what lies there once you cut away all the fat and gristle. We call it a scam. They call it a business plan.

The worst thing about the edicts of the Church of Churn and Burn isn’t that they’re ‘‘mean’’ or violate some whitepaper’s thumb suck on ‘‘best practices’’; it’s that it makes less money. Their avowed justification for being a jerk, profits, doesn’t even hold its own water. This notion of get the customers in the door, get as much money as you can from them, then toss them out the back and launch your next marketing campaign to get the next batch of suckers, is dead. It might have worked when you could just bombard consumers into submission with enough repetitions of your 30-second spot, but consumers are getting the real scoop from each other with unprecedented ease, breadth, and depth. The Internet has accelerated word-of-mouth to the degree that one reader’s customer- service horror story can go from Consumerist.com to the tops of social news networks to major news outlets in just a few days. How cost- effective did you say was the idea of firing all your experienced floor employees and replacing them with raw recruits, Circuit City, R.I.P.?

You’re probably being ripped off at this very moment and you don’t even know it. Have you seen what your frequent flyer miles are worth lately? Probably a lot less than when you signed up. Everywhere we turn, companies are pulling back from the value they offered when you signed the contract and handed over your payment, and leaving fees and restrictions in their wake. Gift cards whose value dwindles over time. Credit-card payment due dates getting shorter and shorter. Customers with one late payment on their credit card having their interest rates shoot up to the highest the law allows. Impossible-to-fulfill warranty repairs. Overdraft fees completely disproportionate to their cost. Health insurance coverage denied for the flimsiest of reasons. The list goes on.

A number of false prophets say they have the answer. It’s almost rote that each iteration of ‘‘new marketing 2.0 get jiggy with the Internets’’ advice uses as its proof of concept some story about how there was this one guy who absolutely loved this company’s let’s say hats and every

x FOREWORD

time he got on the plane he would tell people how these hats rock. He sent in his ideas on how to make hats even better and rather than not even reading what he wrote or responding with a form letter and some free coupons, the hat company sent himmore free hats and incorporated some of his suggestions in their future designs. Yay, see how treating your customers nicely and using their feedback works. This is ground- breaking research? I always thought the secret of business was figuring out what people need and selling it to them. Apparently, others hold different opinions. They’ve opted to build entire empires based on telling people what they want and then selling it to them. It works, until people stop listening. You can’t tell people what to do if they’re not listening. Well, it’s not that they’re not listening; they’re just getting their infor- mation from a lot more sources. Sources that are faster, better, and independent. In this new environment where customers demand instant accountability, your street cred is priceless.

Surely there must be a way to bridge the gap between us and our customers. Jaffe’s book seems a pretty good place to start. He gets that customer service is marketing, and that marketing is listening. As he details, it might take under a minute to ruin a customer’s opinion of your company, but Google will remember their blog post forever. Crisis mitigation is but just the first step, though. Using social media to put out PR forest fires is one thing, but can you cultivate bonfires of customer joy?

Through success stories like USAA, Zappos, and the Obama campaign, Flip the Funnel demonstrates how leading-edge marketers are authentically engaging with their customers and building long-term relationships, relationships that can live through and beyond economic downturns. With insight, enthusiasm, and real-world examples, Jaffe illuminates the philosophies and techniques marketers need to be using to survive in a world where the communications playing field is flat- tening and average citizens are seizing power and dictating the terms of what gets paid attention. Not only is marketing no longer one-way, it’s not even two-way. It’s a conversation between you, me, and everyone I’m talking to about what we’re talking about. Sure, social media is a huge part of the equation, but you can’t just slap your company on Facebook and expect to start a revolution. As Jaffe shows, it’s not which tools you use, it’s how you use them, and why.

In this book, Jaffe proves how by making customer experience paramount, retention becomes the new acquisition. This is the ‘‘flip’’ of the traditional ‘‘marketing funnel’’ that forms the basis for this book’s

Foreword xi

title. Within he reveals how some of the most exciting and inspiring organizations are shifting the marketing model so that they start with the sale rather than ending with it. After all, if activated brand advocates are your best form of advertising, do you really need more advertising? Or do you just need a better way of relating to your customers?

—Ben Popkin Co-Managing Editor, Consumerist.com

xii FOREWORD

Acknowledgments

I want to thank my fellow crayonistas, in particular Amadeo Plaza for his contributions toward this book. In addition, I want to thank Greg Verdino for his ongoing counsel and also because I didn’t thank him in Join the Conversation.

A number of organizations helped make this book possible, but in particular Forrester Research and Satmetrix gave me access to key research, data, and insights.

To Seth Godin, who (unbeknownst to me) authored an e-book several years back titled Flipping the Funnel. When I found out about it, I asked him how he felt about my book concept, which admittedly was different enough from his specific take. Being the gentleman he is, he told me to venture forth, be fruitful and multiply, which I found strange but uplifting nonetheless. Thanks, Seth.

This book is all about customers and so tomy customers, both crayon clientswho have allowedme the incredible opportunity toworkwith their esteemed brands and put all this theory into practice, and to the countless companies that put their money where my mouth is and bring me out to speak to audiences in every major continent on this planet—thank you all for your business, friendship, and continued support.

To my community of readers, listeners, viewers, friends, fans, and followers, thank you for all your wisdom and for making me look smart.

As always, to my Mother. Do I even need to give a reason?

xiii

Preface

What if we got it all wrong? What if everything we held about doing business was backwards?What if all our theories, assumptions, and best practices were, in fact, flawed?

Those are some of the questions I hope to answer—or, at the very minimum, stress test—in this book. And in doing so, I hope I’m able to offer up a few paths less traveled for you to explore and ultimately venture down when it comes to building businesses, brands, and relationships.

In many respects, Flip the Funnel is a logical evolution and inevitable conclusion of sorts from my first book, Life after the 30 Second Spot, throughmy second, Join the Conversation, to ‘‘this.’’ In all three books, I’ve done my utmost to debunk some of the worst-kept secrets in the business and marketing worlds. In all three books, I essentially take aim at dirty little secrets, unafraid to say the things most dare not, and am prepared to ask the questions that many wish were put out there yet that remain relegated to back-office conversations.

Starting with Life after the 30 Second Spot (which is slowly but surely becoming required reading across university campuses), I focused on the three primary colors of red, yellow, and blue—or television, radio, and print—and claimed that in its existing form, the 30-second spot (as a metaphor for a certain way of doing business) is either dead, dying, or has outlived its usefulness. I essentially interrogated what we call paid media as nothing more than an unnecessary evil, a traditional and therefore predictable, staid, and decreasingly impactful blunt object. In its place, I introduced the concept of nontraditional—that is, emerg- ing or alternative—approaches, or new marketing, the other 93 colors in the box of crayons. I outlined ten of these new approaches: interactive, gaming, on-demand consumption, long-form content, communal mar- keting, experiential marketing, consumer-generated content, mobile, search, and branded entertainment.

Next came Join the Conversation,where I took a broad-based view that all the communication in the world can get you only so far—after which conversation takes over. Think about it this way: Communication— defined as us talking at, to, or down to them—gets our foot in the door,

xv

while conversation is our consumers’ opening the door—as opposed to breakingour feet by repeatedly slamming that dooronus—and invitingus into their homes, living rooms, and lives. I made the case that there are literally millions of conversations (alive, real, flawed, authentic, persua- sive, human) going on around us at this very moment, so isn’t it time we joined in? I asserted the hypothesis that marketing can be a conversation, as opposed to an unwelcome guest.

And now here we are: living in a world of transparency, operating on a level playing field where there has been an acute democratization of control.We’re doing business amid a rapidly shrinking, flat world where a collective consciousness throbs with a passionate sense of purpose, a global orb of integrity governed by communities or wise crowds, where the four Cs—communication, collaboration, connectivity, and creation (creativity)—fuel social fusion.

Oh and yes, there’s that social media thingy: the Web 2.0 phenome- non, the new world, the new order, the antidote or cure to the common cold. Though I live in this world, I’m not governed or brainwashed by it. I live, breathe, and sleep this world, but I’m not reliant on it. And so, if you’re expecting a social media handbook—a how-to tactical guide to help you get your blog deployed, friends acquired or influenced, or your tweet stream initiated—quickly return to the store and get your money back.

In contrast, this book is probably the closest I’ve come to returning to my roots or, arguably, the roots of marketing itself. It’s all about finding a balance between the very fundamentals of marketing and business theory and intertwining them with new ideas, uses, stories, and approaches. Think of it as the best of the old combined with the best of the new. Case in point: I’ll spend a lot of time talking about customer service, but not the way you usually think about it. Instead, I’ll show you how it’s not a reactive means of helping customers with problems, but rather a key—perhaps THE key—strategic differentiator that could quite possibly transform your business. I’ll cover relationship marketing but, again, not as you’ve ever thought about it. I’ll allude to permission, opting in, e-mail, and CRM (customer relationship marketing or man- agement) without forgetting about the who on the other end of the spectrum. In other words, keeping it real, having honest, open, and dynamic conversations with the human beings we call customers.

As the title of this book intimates, I’ll introduce an entirely new customer behavioral framework that mirrors, counterbalances, or con- tinues where the traditional consumer behavior model leaves off. I’ll also

xvi PREFACE

put forward several new ideas that will layer neatly on top of the running themes in this book. For example, how does word of mouth combine with customer experience? What is the real role of social media? Is it possible to grow a business from the inside out? What happens when customer evangelists become effective salespeople? Is it possible to incentivize existing customers to spread the good word about you, your company, and your goods and services without muddying the waters in the process? Some refer to it as ‘‘sponsored conversations’’; I call it customer activation or Affiliate 2.0, a new kind of referral-based marketing that works from the inside out.

I’ll challenge you to flip everything you knew to be true on its head. I’ll encourage you to flip the funnel—and to do so now. I’ll urge you to focus on retention instead of acquisition to the point where retention becomes the new acquisition. As always, I won’t expect you to agree with everything I say, but I don’t need you to. If you can take away just one actionable insight or idea and put it into practice in a way that saves and/ or earns your companymillions of dollars—or your currency of choice— then I will have done my job a million times over.

THE MILE HIGH CLUB

I noticed that the airline industry seemed to come up an awful lot during the writing of this book. And it is fitting that as I write this particular paragraph, I’m actually on a flight. So I cameupwith two reasons as towhy flying seemed to contribute so many case studies to this book:

1. More and more airlines are now outfitted with wireless high- speed Internet access. This real-time connectivity is rapidly compressing the speed at which a complaint hits the conversa- tional or social stratosphere.

2. Airlines are famous—or perhaps I should say infamous—for providing poor customer service. Many consumers resign them- selves to the fact that they all suck equally. And yet there are stellar examples of how this could—and should—be corrected. The lesson here is simple: Every business in every sector is capable of flipping the funnel.

Every industry has a similar story to tell. What about yours? Will your company flip the funnel by doing what Virgin, Jet Blue, or

Preface xvii

SouthWest did to their industry, or litter the trash heap alongside the countless airlines that failed to triumph over mediocrity, convention, and the status quo?

TICK. TOCK.

As with my first two books, this book is an elaborate opinion piece. It’s based on my personal vision and unique perspective on where the puck is heading. If I’m even remotely right about what I say, then the ideas, strategies, and recommendations in this book can be truly transforma- tional for business in general—perhaps even your business. And I’m not talking about business as usual. I slay sacred cows, even purple ones. I’ve found that people play it safe too often. They don’t make a decision. They’re afraid to stick their necks out. I’m not like that, and I hope you appreciate it.

The preceding paragraph is also my way of saying that I’m not professing to be any kind of CRM, one-to-one, loyalty, retention, customer, service, or e-mail marketing expert per se. That just might be a good thing; it allows me to come into this discovery process or journey without prejudice, bias, or baggage. As with marketing in general (ever heard the line ‘‘advertising isn’t rocket science?’’), I believe that treating customers well, remembering their names, respecting their loyalty, rewarding and recognizing their repeat business, and finally, harnessing their untapped potential as advocates, salespeople, and affiliates are all COMMON SENSE. So while I won’t elaborate on the various technologies, systems, and convoluted so-called solutions in this space, I will offer strategic guidance and frameworks that I think need to be in place to support any subsequent investment thereafter.

I should also mention that my writing style is unique. It’s not for everyone. I write as I speak, and I speak as I write. I use ‘‘quotes’’ a lot and (even) (more) (parentheses) than are sometimes bearable. Perhaps it’s a written visualization of how I think; call it nonlinear or ADD, depending on whether you’re feeling generous. I hope it doesn’t put you off.

Onemore thing.Asyou read this book, feel free to reachout tomewith questions, comments, or ideas.You cancontactme in a variety ofways (see the back of the book), visit the book’s web site (www.flipthefunnelnow. com), e-mail me at jaffe@getthejuice.com, or send me a public or private message via @jaffejuice (my primary account) or @flipthefunnel (with specific book-related questions) on Twitter.

xviii PREFACE

Section I

Getting Priorities Straight

1

The Theory behind Flipping the Funnel

It’s time to go back to school and open up your Principles of Marketing textbooks, where you’ll read about S.T.P. (Segmenting, Targeting, and Positioning), the three key roles for communication (informing, per- suading, and reminding), and ultimately, the four pillars of marketing strategy: the four Ps of Product, Price, Place, and Promotion.

Now I’d like you to tear up those textbooks, forget those theories, and start anew with a blank sheet of paper.

Stereotypical demographics are no longer enough to paint a suffi- ciently rich picture of a prospective customer beyond a superficial outer layer of basic variables. Top-of-mind positioning has been replaced with top-of-page positioning (in other words, search-engine results). The advertising-biased roles of informing, persuading, and reminding are being usurped by involvement, demonstration, and empowerment. The commoditized four Ps have been updated with a newmodel: the six Cs of Content, Commerce, Community, Context, Customization, and Con- versation (per Join the Conversation, which I’ll reprise a little later in this book).

And now it’s time to set our sights on the very foundation of consumer behavior itself: the marketing funnel, aka, A.I.D.A. (the theory, not the opera). A.I.D.A. stands for Awareness, Interest, Desire, and Action. It is widely held to be the simplest and most accurate way of describing the four states or behaviors that almost all consumers experience—from being blissfully unaware of a product, service, offer, or idea that they never knew they needed to the point at which they actually make some kind of commitment (usually monetary) to pur- chase, invest in, or acquire that item.

Allow me to delve into each stage in a bit more detail.

3

AWARENESS

Perhaps A should stand for alpha male when it comes to the unrelenting hold that awareness has over us, the dominance it exhibits over our attention, and more important, our investment in awareness-led initia- tives relative to the other three components. A could also stand for Advertising, because it is predominantly this—or, more specifically, paid media—that is deployed in order to deliver on an arbitrary awareness objective.

I’m still not quite sure where it is written that telling and selling1

should eclipse all other steps in marketing acquisition to the point of dwarfing them in the process. To this day, there are still way too many companies that invest way too much money in efforts that have nothing more than a singular goal: create awareness. Don’t take my word for it— take the test yourselves. Divide your marketing dollars into the follow- ing four buckets:

Budget Breakdown Against A.I.D.A.

Investment Dollars Percentage of Total

Awareness (e.g. advertising) $ % Interest (e.g. search) $ % Desire (e.g. promotions) $ % Action (e.g. e-commerce, POS,

in-store) $ %

100%

I wonder if it’s nothing more than desperation—or perhaps I should say resignation—that motivates otherwise smart people to set a bar so unbelievably low that their entire success or failure hinges on a binary state of being aware or unaware. To be sure, if people don’t know about you, your products, their benefits, and what makes them different and/or better than competing products, the odds are much lower that they’ll actually purchase your product. Other than serendipitous or accidental encounters at the store, the bus stop, or the watercooler, there has to be some kind of formalized structure or process in place designed to seed, guide, or migrate customers from ignorance to enlightenment.

There is, actually. Read on.

1A phrase introduced by former Procter & Gamble Global Chief Marketing Officer

Jim Stengel.

4 FLIP THE FUNNEL

Knowing, however, is not the same as doing. Merely putting some- thing out there in the hope that it will stick is naive, futile, and exceptio- nallyunrealistic in today’s fragmented, cluttered, and brand-wary world. Avinash Kaushik, author of Web Analytics and analytics evangelist for Google, refers to much of media communications as ‘‘faith-based initia- tives.’’ In other words, they are often futile attempts to bridge or reconcile the vast chasm between the two ends of the funnel—exposure and conversion—in order to prove the causal link and proportional relation- ship between communication (awareness) and commerce (action).

INTEREST

Getting people to care these days is like climbingMount Everest. People today are skeptical, jaded, cynical, and wary—and increasingly so, due to the hardships and hangover of the recession. And those are the good ones! The rest are apathetic, uninterested, indifferent, and detached. Most messages don’t make it through the multiple layers of consumers’ near-impenetrable defenses, and the ones that do are greeted with either a pitchfork or a pillow. It’s a catch-22 of dire proportions.

As the funnel begins to narrow, what’s left is a group of people who have some kind of reaction—positive or negative—toward a promise, value, or selling proposition. It’s not guaranteed that they’ll remain on the path toward purchase; they’re not necessarily motivated to do anything about their raised eyebrow, chuckle, or head nod; and even if they are dead set on getting to the next level, there’s no assurance of success, because of a variety of logistical curveballs, such as crashed browsers, closed stores, human error, or other uncontrollable forces.

The one-two punch of Awareness-Interest is a good start, but it falls painfully short of being able to completely close the gap between exposure and conversation. To get to the next phase of the funnel, companies need more follow-through and staying power. However, they typically run out of steam (or budget) in the graveyard of wasted and/or ignored impressions that bleed them dry as they attempt to repeatedly hammer home their message in order to get this far in the first place.

That’s where search came to the rescue, hitting the ground running with a presupposition of some kind of qualification of relevance, resonance, and/or interest. With search, consumers travel a two- way street, often initiating a journey or dialogue with a potential

The Theory behind Flipping the Funnel 5

brand suitor as opposed to the other way around. Science trumps faith—especially when performance-based pricing ensures that mar- keters get what they paid for in a transparent package of perfect information.

But search has its shortcomings as well; it cannot exist in a vacuum. For starters, it presupposes baseline knowledge or, dare I say, aware- ness. Put differently, people don’t know what they don’t know. Fur- thermore, as efficient as it might be, search—like awareness—is not a guaranteed direct path to the checkout counter.

Interest is essentially a road sign that says, ‘‘You’re in the right place’’ or ‘‘You’re on the right track.’’ It’s the refreshment stand in a marathon race, but it’s not a guarantee of a medal, or even an assurance of finishing the race at all.

DESIRE

Brand messaging teaches us that there needs to be a reason to believe, whereas a tactical hook offers a reason to behave. If the former answers the question, ‘‘why should I care?’’ the latter addresses the ‘‘what’s in it for me?’’ part of the equation. And don’t underestimate the power of ‘‘intent’’ on the part of our consumers or ‘‘incent’’ on the part of ourselves (as sellers), because it’s huge. There’s simply too much choice in the marketplace for us to foolishly believe that our special brand of secret sauce is so good that all other options pale into obscurity. When the funnel narrows even further at the desire phase, everybody left in the running has some kind of varying state of readiness to make a financial commitment—that is, purchase.

Intent to purchase is 95 percent of the battle won. Being motivated (or even self-motivated) to satisfy a want, need, or desire to purchase a product or service implies a sense of pull that needs to be helped with a final nudge or push to help a consumer get over the hump of best-laid plans. Promotions are probably the best tactic in our marketing toolbox for allowing us to offer up an incentive for consumers to get to that 95 percent mark.

That said: wanting to buy and actually buying can be worlds apart. As the saying goes in golf, ‘‘99 percent of all short putts never go in the hole.’’ Customized offers and calls to action, incentives to act (now!), and packaging redesigns or modifications—including (but not limited to) ‘‘now with 20 percent more toothpaste’’—are all designed to help over- come the final hurdle that separates consumers from customers.

6 FLIP THE FUNNEL

ACTION

There is light at the end of the tunnel (or rather, funnel.) Where was once a sea of suspects or an army of prospects, we now have a fraction of the mob that made it to the store—physical or online—and committed a portion of their hard-earned salary in exchange for our wares. At the point of purchase (what is referred to in retail as the ‘‘final three feet’’), the ink is pretty much dry, and there’s really not much marketers can do to change a consumer’s mind.

Or can they? With point of sale, couponing, digital signage, and in-store television

networks—and on the not-too-distant horizon, RFID, GPS, mobile social networking, and Wi-Fi—the storefront is going to become the new battlefront. For some it will be the last stand, and for others a second chance at (coupon) redemption.

The final few steps of the marketing funnel may seem like a fait accompli, but it’s a lot harder than it sounds. Walls of competing SKUs, diversions and distractions from in-store displays, and gondola ends designed for that change of heart (a place to dump your unwanted goods) or to make an impulse purchase are all difference makers. It’s exponen- tially magnified online, where pretty much anything and everything is only a click away, and where self-imposed ADD in the form of a Twitter chirp, Outlook ding, or IM ping is enough to reverse several carefully constructed steps of migration from one side of the funnel to the other.

Warts and all, this is the marketing funnel in its simplest terms and definitions: a linear, standardized, and otherwise predictable process of defining, segmenting, and describing consumer behavior from market- ing management, communications, and even sales perspectives.

It is a funnel that has stood the test of the time . . . or has it? Today, the once-shiny funnel is dingedanddented, rusted anddusted.

It relies onmasses of quantity in order to arrive at a manageable end point of quality; it is a methodology that takes protracted time, endless reserves of energy, and (though not endless) a ton ofmoney. Themarketing funnel is synonymous with—and probably should just be called—an acquisition funnel, and it is a funnel of futility when it is an end unto itself.

WHAT’S WRONG WITH THE FUNNEL?

This book hypothesizes that there’s something inherently out of whack with the traditional marketing funnel and that there are better ways to

The Theory behind Flipping the Funnel 7

optimize it. Most of this book concentrates on the latter approach, the ‘‘flipping’’ part. However, it is worthwhile to spend a little bit of time calling out several shortcomings associated with the incumbent theory in order to provide a base level of context for the suggested alternative.

It’s Out of Date

Come on; people aren’t predictable, linear, rational, or sequential beings. They probably never were. Though the four steps make sense in theory from a logical or even chronological standpoint, the buying game is very different in reality. In a word-of-mouth and word-of-mouse led world, the process of researching and buying is decidedly nonlinear, and it’s likely that some steps are skipped altogether in an always-correcting, efficient, and evolving marketplace.

It’s Lopsided or Out of Proportion

The reason the funnel is wider at one end and narrower at the other is not only because of the number of people that are theoretically present at each step but arguably because of the amount of money spent or available at each step. If you think about it, shouldn’t we be spending more money against qualified prospective buyers versus shots in the dark at bagging a random stranger?Of course we should. It’s a complete no-brainer.

It’s Oversimplified

There’s a fine line between simplifying something complex down to a root or core state and oversimplifying it to a fault. The marketing funnel does not factor in at least three critical components associated with the qualification process, and even more intriguing is that all three are consumer driven or initiated, starkly contrasting against the incumbent steps, which are all marketing-centric or oriented. These steps are as follows:

1. Research—Search is just the tip of the iceberg, a portal into an aggressive and proactive due-diligence process. Consumers today are indefatigable researchers; they will do what they can to make informed decisions that disintermediate marketing mis- direction, hyperbole, overpromise, and hype. They’ll also spend

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increasing amounts of time talkingwith peers, colleagues, friends, and family members, as well as interacting with newly formed acquaintances in the social networking and digital community arenas.

2. Trial—Try before you buy is a crucial solution to hesitation, inability to commit, or indecision. And just like search was the tip of the research iceberg, so, too, is couponing or sampling the tip of the trial step. Oftentimes, trial is indirect or inferred; for example, a movie review today is independently and representa- tively vetted, endorsed, and validated by a community of ‘‘me’s’’ and ‘‘you’s.’’ When trial becomes an existential experience, there’s no danger in seeing a bad movie anymore.

3. Satisfaction—Interestingly enough (if we’re usingWikipedia2 as the gold standard), ‘‘satisfaction’’ is the only missing component of A.I.D.A. that tends to make it into conversations about the consumer-qualification process. Perhaps it’s because it slots neatly into an acronym (A.I.D.A.S.), and who doesn’t love the convenience of a neat-sounding acronym? Satisfaction is the one clue that the funnel is not quite done yet.

It’s Linear

Human beings are increasingly unpredictable mammals. Expecting them to go through any kind of process (especially one WE created for THEM) with a degree of standardization and/or certainty is a dangerous assumption to make. With incessant distractions, constantly new propositions, and exciting ways of transacting with a company, it’s no longer valid to bank on a predictable path to purchase. Instead, witness a more realistic behavior, mixed with accelerated, skipped, and even repeated steps or pathways to purchase.

It’s Open

What happens to the chosen fewwhomake it through to the other end of the funnel? They fall to their grisly deaths in the vertical drop of attrition. Put less grandiosely and more pragmatically, the funnel is purely an acquisition process and does not continue to retention. Perhaps if there were a bucket underneath, we’d be a little more

2 http://en.wikipedia.org/wiki/AIDA (marketing).

The Theory behind Flipping the Funnel 9

reassured that there was some kind of safety net built into an incredibly costly (or risky) game of conquesting.

It’s Incomplete

Even if the funnel were closed insofar as there was a destination or goal, it would still be incomplete; the end point would still be a dead end. The marketing funnel produces customers—but then does nothing with them. With so much effort expended to produce a priceless transaction, it is almost inconceivable that we all but abandon our intensity there- after. Perhaps we’re locked into a cruel version of Groundhog Day, when we immediately are taken back to the beginning, only to have to repeat our entire marketing mating dance with (as history has shown us) barely any new lessons learned and diminishing success rates.

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2

What the Recession Taught Us (AKA Returning to Basics)

We are living through challenging times. I don’t have to tell you that. In the blue corner, we have the worst recession since the Great Depression. In the red corner, we have increasing demands to produce ‘‘more from less.’’ This is not exactly the kind of motivation that gets you out of bed in the morning, but it’s certainly the kind that keeps you up in bed at night. So what’s a self-respecting businessperson to do about it—especially when your job might not be there in the morning?

We must understand the past to plan for the future, and when it comes to operating during challenging times, there is good news. Study after study clearly show that companies that continue to invest—and market—during recessionary times almost always reap the rewards of doing so when the economic climate stabilizes. In fact, they don’t just do okay; they do better than their competitors. Whether it’s priming the pump, setting the stage, or just continuing to keep the lights on to brighten an otherwise dim atmosphere, keeping the wheels turning makes sense.

There are probably several reasons or explanations as to why this is the case. Here are three:

1. Attitude (positive) 2. Boldness (risk taking) 3. Continuity

ATTITUDE

The power of positive thinking might sound trite, but when last I checked, entire industries have been built around this simple notion.

11

Just ask Rhonda Byrne, author of The Secret, if ‘‘glass half full’’ trumps or surrenders to a ‘‘glass half empty’’ perspective.

To be clear, I’m talking less about blind hope and more about healthy pragmatism with respect to the rational belief that things will return to how they once were. People drive, eat, and consume; they spend, shop, and buy. These are not up for debate. They’re universal truths. Sure, there are times when they might do less of these things than they used to—such as business or personal travel—but for every door that closes, another opens. Case in point: videoconferencing, like Cisco’s Telepresence (to replace travel for meetings) or, in the con- sumerworld, staycations or family road trips (instead of a regular family vacation).

If there’s anything that’s inevitable, it’s the swinging of the pendu- lum as it returns to rest and equilibrium. Yet for some reason, the scenario of doom and gloom is typically met with desperation, despair, and defeatism, whereas the converse—when times are too good to be true—is often characterized by arrogance, hubris, and unrealistic expectations of sustainability.

The point is that history is on our side. People will no doubt continue to buy stuff. And sell stuff. And do

both on eBay. It’s just that they sometimes go on hiatus when they’re distracted. And if you’re in the business of business, chances are that the extremely bad times will be canceled out by the extremely good times, and you’ll settle somewhere nicely in, on, or around the middle.

During these uncertain times, it’s important to keep the fires burning. It’s also vital to avoid extinguishing a flame that is always much harder to reignite than it is to keep alight. This analogy is most relevant and applicable for our customers from a retention standpoint (more on that later).

BOLDNESS (RISK TAKING)

I’m a big fan of taking risks, and yet the rest of the world seems to disagree with me.

At the end of the day, we’re in two separate yet related businesses. One is about managing change, and the other is about managing (or mitigating) risk. If you think about it, today’s chief marketing officers got to where they are not by managing risk but by mitigating it.

Does this sound like a strategy worth banking?

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Risk is the ability to do things that have never been done before, to boldly go where no brand has gone before. In marketing speak, to differentiate; in business speak, to lead. At least, that’s my definition of risk. According to the dictionary however, it would appear that risk is in fact associated with negative consequences, not positive ones. Wikipedia defines risk as a ‘‘concept that denotes a potential negative impact to some characteristic of value that may arise from a future event.’’ These events or conditions—especially ones characterized by uncertainty—are thought to have harmful or negative effects. In everyday usage, risk is often used synonymously with the probability of a known loss—an ironic certainty, indeed.

At the end of the day, only you can decide on which side of the fence you sit. While you’re thinking, consider this:

� Risk is relative. What is risky to one person is not to another. � Risk can be calculated, or measured. Managing it can be both a science and an art.

� As the saying goes, ‘‘If I had known then what I know now, I would never have done it.’’ Sometimes just doing it trumps analysis paralysis and fear of the unknown.

� The risk associated with doing nothing and sticking to the status quo may ultimately outweigh the downside of doing something differently and erring in the process. Case in point: spending millions of dollars on campaigns that nobody notices (unless you’re counting hits on YouTube as your barometer of success).

Boldness is not about taking chances; it is about being confident, decisive, and laser-focused when making the right decisions for the right reasons at the right time. It’s also why—if you’re the only one pro- actively marketing during a time when no one else is—standing out from the crowd quite literally becomes inevitable.

An Association of National Advertisers (ANA) study from February 2009 measured sentiment within the marketing community and com- pared it to six months prior (August 2008). Pretty much every indicator was negative to downright depressing. When asked about cutting costs (which wasn’t an ‘‘if’’ but a ‘‘how’’ type of question), here’s where marketers were slashing their budgets:

� Department travel and entertainment restrictions (87 percent versus 63 percent in the previous survey)

What the Recession Taught Us (AKA Returning to Basics) 13

� Reducing advertising campaign media budgets (77 percent versus 69 percent previously)

� Reducing advertising campaign production budgets (72 percent versus 63 percent in the previous six months)

� Challenging agencies to reduce internal expenses and/or identify cost reductions, aka layoffs (68 percent versus 63 percent)

� Eliminating or delaying new projects (58 percent versus 61 percent)

I’m less concerned about the decreases pertaining to advertising, because, quite frankly, this relates to an inevitability that has been decades in the making. I was interested in the ‘‘eliminating or delaying new projects’’ category, which, incidentally, was the only category that actually did not increase in terms of cuts. Although it wasn’t clear to what extent this covered investment in technology, innovation, or experimentation (as opposed to a new photo shoot, over-the-top Super Bowl campaign, or glossy rebranding effort), budget cuts were hope- fully more of the latter and less of the former.

Eitherway, this number is still too high.During constricted times like these, an obsessive focus on thinking smartly, creatively, shrewdly—even laterally—is required. This kind of thinking does not and cannot happen in the absence of risk. When Hyundai launched their simple promise along the lines of ‘‘Lose Your Job, Return the Car,’’ they took a risk that they’d be sitting on a heap of returned cars—especially considering that January 2009’s job losses (598,0001) were the worst in 34 years (and that a whopping 1.8 million jobs were lost in the United States in the three-month period of November 2008 through January 2009). But when last I checked, this hasn’t happened. In fact, Hyundai’s sales were up 14.3 percent2 in January 2009. That’s what happens when you trust your customers like you would want them to trust you in return.

CONTINUITY

In media terms, we’d call this the antidote for going dark on our customers, in other words, maintaining a consistent dialogue with one’s consumer base. As mentioned in Join the Conversation, this is the

1 http://money.cnn.com/2009/02/06/news/economy/jobs january/index.htm?postversion

2009020610. 2www.forbes.com/2009/02/04/hyundai-mazda-mitsubishi-markets-equity-0204 auto04.html.

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ability to create a systematic process and contact management system that ensures and encourages frequent and meaningful dialogue with your consumer—on their terms.

At the very core of the definition of ‘‘branding’’ is the word ‘‘continuity’’ or ‘‘consistency’’; in this context, they are one and the same. It is absolutely imperative that we remember that business does not occur in staccato. For some reason, our acute inability to present a smooth, integrated solution to our customers runs starkly in the face of how they live their lives. Our mission is to ensure that there’s always a trail of breadcrumbs that leads us to our customers and back again. I often refer to this as connecting the dots or establishing (and reestab- lishing) meaningful connections if and when they’re needed.

Along the same lines as keeping the fires burning is the need for sufficiency. What’s the minimum acceptable level of contact, presence, interaction, and/or commitment we need to stay in the game andmaintain some kind of workable dialogue and business momentum? Clearly, every company and industry is different, but these are vital questions that must be addressed and ultimately answered—preferably long before they actually need to be.

Companies that maintain consistent rapport with their customers during tough times insulate themselves against inroads that come at the hands of undercutting and undermining competitors—aswell as promote a renewed sense of loyalty. As the saying goes: A true test of a friend is not during the good times, but during the bad times. When the going gets tough, we reveal our true colors—and hopefully the color we display is not yellow.

Now here’s the funny thing: The chapter thus far really has nothing to do specifically with operating in a recession. Sure, these truths are exacerbated by tough times, but if you think about it, poor economic and operating environments just amplify an already existing and often unmet need to serve the lifeblood of your business—your customers.

We always remind ourselves that the primary goal or role of advertising is to sell stuff, but that’s really just one piece of the puzzle. Our cardinal mistake is to forget that it is these four simple truths (or metrics) that keep us in business:

1. Getting more customers to buy from us 2. . . . More often 3. To spend more with us in the process 4. . . . AND to recommend us to their friends

What the Recession Taught Us (AKA Returning to Basics) 15

So why, then, do we seem to concentrate the lion’s share of our dollars on point 1 ONLY?

What if we’ve got it all wrong? Or what if we had the right idea all along but just went about our business the wrong way? Take the marketing and sales funnels, for example (they’re somewhat different). These tools from the classic marketing tool belt were designed to sift through an inordinate amount of suspects and prospects to extract the gold nuggets (customers) from the dirt (everyone else) by gently guiding (or sometimes forcing) them through a linear progression from aware- ness through action. But what if, instead of ending with the purchase action by the converted customer, we beganwith this action and, in doing so, focused on achieving three distinct goals:

1. Building solid, ongoing, and authentic bonds or relationships with our customers (customer service and experience)

2. Transforming customers into returning clients and ultimately advocates (customer relationship management)

3. Harnessing the unstoppable power of referrals, recommenda- tions, and word of mouth for outreach to other potential custom- ers (social networking or even a new kind of Affiliate Marketing)

What if, by following these rules, we were able to essentially flip the funnel and reverse engineer future growth from a platform or foundation of current growth?What if we could use the sparks of satisfaction to generate a raging furnace of preference, precedence, and insistence?

From the few come the many: That’s the mantra of the flipped funnel. As you’ll see from this book, it can be applied to any business in any industry, as it can be applied to you andme, in both our personal and our professional lives.

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3

Charity Begins at Home

Indulge me for a moment and break out your sales into four categories:

1. Business that comes from marketing-led acquisition or conquer- ing (i.e., first-time customers)

2. Business that comes from repeat customers (as defined by two or more times)

3. Business that comes from successful upgrading or migrating of customers to increased or higher tiers of spending (often defined in loyalty terms based on levels of spending)

4. Referrals from existing customers (new business from old customers)

Then again—that is if you even know how to break out your sales into these categories in the first place. It’s always surprising to me how few companies are truly on top of their customer data—or are able to classify their revenues into just four high-level buckets.

For this reason, let’s make it even simpler and instead break out your sales into just two groups: acquisition-related business (category 1) and retention-based business (categories 2 through 4). Once you have these priceless percentages, I’d like you to overlay these against the total amount ofmoney invested against each of these respective groupings.My gut tells me that there’s probably a huge imbalance between the two analyses.

Why is this the case? Why do we continue to allocate our financial resources inefficiently relative to what really matters?

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THE THEORY OF RELATIVITY

Listen—this is all relative at the end of the day. Budgets are fixed. Time is precious. Attention spans are in short supply and under constant threat from the barrage of noise, clutter, and irrelevance. We ourselves are hard-pressed—during bad times or good—to deliver more from less. And if all of this is true, then we need to figure out better, smarter—and, yes, cheaper—ways to teach our old dogs new tricks.

HOW WE’VE DONE IT IN THE PAST

The process of allocating budgets and making investments from them is not exactly rocket science, but perhaps it should be. This is one case where art is unwelcome at a table that really needs to be laser focused on three primary variables: inputs, outputs, and outcomes. Return on investment (ROI) remains the simplified metric that we covet in order to validate our decisions, assure us we’re heading in the right direction, and extrapolate to project and predict future spending.

For many companies that have no clue how to calculate meaningful return on investment, there’s a less-foolproof method of using last year’s budget as a baseline or benchmark for next year—and in the interim, making sure all unallocated money is spent in a use-it-or-lose-it power play. Increasingly, however, companies are turning to marketing mix modeling (MMM), which helps them figure out how to optimize their media spending and reallocate their marketing dollars from one bucket (say, advertising) to another (say, public relations or digital marketing). It’s a zero-sum approach that attempts to maximize both the efficiency and the effectiveness of paid media impressions in order to yield the best possible levels of reach, frequency, and impact.

Optimization makes all the sense in the world and will no doubt continue to do so. Tweaks, reallocations, and redistributions of available funds across the full spectrum of acquisition tools, platforms, media, and approaches are a powerful way to get more bang for your marketing bucks. Getting your message in front of the right people in the right place at the right time using the right channels is the right thing to do. Improving your chances and maximizing your potential for being seen by those who are of the right mind-set to consider purchasing—or, better yet, make the purchase—is a no-brainer.

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ROBBING PETER TO PAY PAUL

But what if the real optimization that needs to take place is from acquisition-led efforts (all of the preceding) to retention-led ones? What if this entire game of musical chairs and budget shifts is taking place on the deck of the Titanic? Put differently: Achieving the double- barreled goal of effectiveness and efficiency (the contraction of chairs as a metaphor for shrinking budgets, especially during tough economic times and/or more demanding levels of accountability) is meaningless if the ship goes down.