It is just astounding that after more than 35 years, some marketers are still using the flawed funnel approach to how advertising works. This is one reason that real, credible, data-supported brand management must be taught in business schools. For decades, we have known that using the funnel approach to advertising, in hopes of building brand loyalty, is a form of mismarketing on a major scale.
Sadly, we learned from recent Wall Street Journal reporting that 1-800-Flowers discovered that its funnel-based marketing approach was both inefficient and ineffective.
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The funnel approach – AIDA – has been around for a long time. AIDA stands for Attention, Interest, Desire, Action. According to AIDA, your intent with advertising is to generate brand Attention, which should grow into brand Interest, leading to brand Desire, which will spur Action – the purchase of the brand.
The funnel approach is wrong because it does not focus on maintaining customers, strengthening brand bonds, and building brand loyalty. The funnel is all about doing whatever you can to gain customers. The funnel is all about acquisition. Of course, brands need new customers. But new customers should become ongoing customers.
What worries me is that the concept of a sales funnel is still entrenched in brand thinking, especially in discussions of multi-touch attribution models. No brand model will succeed if a sales funnel is used as the base for the customer journey, because real customer choice is contextual, not linear.
As 1-800-Flowers has just recognized, a brand can aggressively gain customers. But those customers may be buying because of price or some amazing promotion. These customers are expensive to acquire. These customers are not with your brand for the long haul. These are not valuable customers; these customers are sunk costs that do not pay back.
For decades, the automotive brands used the Allison-Fisher funnel to generate car purchases. The Allison-Fisher purchase funnel had two segments: the upper and lower funnel. (1-800-Flowers uses a version of this concept as well.) The upper funnel consists of awareness, familiarity, opinion, and consideration, while the lower funnel consists of make-model intention and shopping leading to purchase. The automotive focus was always on “conquesting” new customers, moving them through the funnel to buy a car. Loyalty was not in the funnel. It was as if each purchase was a new purchase by a new customer. “Conquesting” is such an ugly, distasteful concept.
In 2020, Ford Motor Company woke up to the fact that this funnel model was seriously undermining Ford’s brands. Ford Motor Company’s Jim Farley, CEO of Ford at the time, told Automotive News:
“When we did all the analytics, it became really clear: a loyal owner is so much easier for us to do business with than trying to get a customer from someone else. It was a big ‘aha’ moment for us.”
Unfortunately, there were 22 years of funnel model “conquesting” at Ford. NB: In the 1990s, Ford offered only new customers a terrific incentive package for buying its minivan, Windstar. Loyal Ford Windstar customers were ignored and not offered any incentives. Many Windstar owners were pissed off. Mishandling and not caring about Ford loyalists was such an error when the Chrysler minivans were comparable.)
The 1-800-Flowers Wall Street Journal commentary is a lesson in how advertising really works. Or actually does not work. We learn that, even with the knowledge that their funnel approach is untenable, 1-800-Flowers still talks about using the funnel to explain the brand’s next moves, focusing on valuable customers over the long term. It will be interesting to watch as there is no Loyalty Loop of reinforcement at the top of the funnel.
Since the 1990s, with the power of the Internet, digital, multi-device, multi-touchpoint, 24/7, interactive customers, the understanding of how advertising works has faded into “history.” No one learns about how advertising works. Business schools inform about the changing technologies and the ability to generate data and information. But no one teaches the behavioral and attitudinal interactions, the Loyalty Loop of reinforcement, and the power of loyal customers. Business schools must learn that there is no shareholder value without brand value. There is no brand value without valuable loyal customers.
This stuff used to be de rigeur in marketing. Now, not a whisper.
Once upon a time, you had to know how advertising worked to work in advertising.
One critical piece of marketing knowledge is that advertising’s real power lies in reinforcing the brand among those who have already purchased it. The stronger the reinforcement, the more likely the generation of enduring loyalty.
Data from the mid-1990s confirm that “Communication is often most fully attended to after experience with the product or service and acts as a reinforcement of the experience.”
The power of loyalty was a heady, headline-making topic, even at management schools such as Harvard. Customer retention was understood to be a main contributor to profit. Look for the 1993 Harvard Press volume, Keeping Customers: A Harvard Business Review Book.
Since the 1990s, research by Frederick Reichheld has shown that loyal customers are valuable customers. Loyal customers trust and perceive the brand to be a quality brand when they believe – through experience or the expectation of an experience – the brand will deliver on its promise.
Brand loyalty is valuable: truly loyal customers are more profitable, leading to higher-quality revenue growth through increased spending and reduced defections.
A brand increases loyalty by strengthening its relationship with customers.
As true brand loyalty increases, the likelihood of defection because of a competitive price promotion decreases. Research showed that reducing defections by 5% increased profits by 25% and over. Brand enthusiasts will pay more than those who will only consider a brand.
Assuming that customer satisfaction and loyalty are similar is also a current marketing mistake. Although customers may state they are satisfied with the brand, they still defect. In fact, in one study, fewer than 50% of satisfied customers are repeat buyers. Asking a customer if their recent service experience was satisfactory enough to recommend the brand to a friend is a dead end. A customer may have experienced a great service call. However, that customer may be unhappy about needing a service call.
The Reichheld work was conducted in the 1990’s. Imagine today: with speed and access as givens and information easy to obtain, it is easier and faster to switch from one brand to another. It is imperative to know whether your customers are increasing their loyalty, not just frequenting the brand.
The funnel approach does not take any of this proven thinking into account.
One of the unfortunate trends is that the forces of technology and Silicon Valley have muted the rules and principles of advertising and brand building. Right now, it is all about data collection, clicks, and the shopping cart. Yet, without the basic principles, all of this data is just data.
Data collection is not excellent at calibrating attitudes. Why is this important to you as a marketer or brand owner? Psychologists know that attitudes are much better at explaining behavior than at predicting behavior. Further, we learn from psychology that people observe their behavior and then develop attitudes and beliefs consistent with it. A trial experience can become a determinant of attitude, which should be reinforced by marketing. Marketing can help move people up the loyalty ladder by evolving trial into committed repeat purchase.
Hence, the problem at 1-800-Flowers. The funnel approach, even the new version spinning from 1-800-Flowers, does not capture the necessity of reinforcement: the Loyalty Loop. Advertising is not only about creating and attracting customers. Advertising is also about defending and strengthening brand behavior in line with brand expectations, which need reinforcement.
Where is the reinforcement marketing in the funnel? To all intents and purposes, non-existent. A funnel is not a loop.
A brand must communicate with its core customers frequently to reinforce its brand. The brand’s loyalists appear to be a small percentage of the population, but they represent the most valuable segment.
Since the 1990s, data have shown that 10% of the customer base can represent 50% of brand volume. At the time, one of Coca-Cola’s research firms presented Coke’s own data at a Coke conference, showing that 10.3% of Coke’s users accounted for 48.5% of its volume. The data reflected Pepsi numbers, too, showing that for Pepsi,13.% of Pepsi users were responsible for 63.8% of Pepsi volume. Diet Coke’s numbers were 7.2% of users representing 43.7% of volume. Diet Pepsi’s numbers were 6.9% of users representing 44.7% of volume.
If you averaged the percentages of users for these 4 brands and the percentages of brand volume for the 4 brands among these users, you found that, on average, 9.4% of users accounted for 50.2% of brand volume.
When Macy’s began one of its turnarounds prior to 2020, one of the first things it did was focus on its core customer base through its loyalty program. Macy’s noticed that 10% of its best customers accounted for 49% of its sales.
I know that modern marketing is wedded to the 80/20 Rule. But this is old school marketing. The new rule must be the 10/50 Rule. You can only live by this 10/50 Rule if you have a committed customer base that is incredibly enthusiastic about the brand. You cannot use the funnel model to achieve these returns on investments.
Again, this is not new. It is frustrating that marketers avoid what is clearly important information for enduring profitable growth.
Brand should strengthen competitive position, pricing power, and enterprise value. The Blake Project helps make that happen.
Use These Seven Steps As A Guide:
The first thing that marketers must do is to ditch the funnel. The funnel is transmission marketing: here is the stimulus, and here is the action I expect. Brands need to follow Information Theory, not Transmission Theory. This thinking is basic behavioral psychology thinking from 1971. Communication is not what someone does to someone else (funnel), but how to build a relationship with someone else. Add the concept of feedback. Feedback tells us how messages are being interpreted.
Second, know the value of your customers. This is what Amazon does so well. But any brand with a database can do this, too. Make sure you identify and understand your most loyal customers, as they are your most profitable. Make sure there is room for attitudinal information, not just behavioral information. Amazon advises you, “Based on your last searches.” Amazon has so much behavioral information that it can draw some conclusions about your reasoning. However, Amazon does not know why you are behaving in this manner.
Third, do not punish loyalists while rewarding newcomers. You see this all the time. The new customer at Comcast’s Xfinity gets a great deal, while the existing customer pays big time. Magazines and newspapers use incentives for new customers. Anderson Windows is using a no-payment-for-2-years incentive to convince new customers to open their windows to the Anderson brand.
Fourth, sell on quality, not on price. Too much emphasis on price creates deal loyal customers rather than real loyal customers. You see this in fast food. If the emphasis is on price, the primary message is how cheap your brand is, rather than how great it is. 1-800-Flowers spoke about how many resources were used to acquire new customers at the expense of the brand. Deal loyalty is not real loyalty.
Fifth, measure what matters. Measure sales and volume. But also, measure and monitor changes in brand loyalty. Remember that customer satisfaction is not the same as brand loyalty. Monitor performance on moving customers up the loyalty ladder to becoming valuable brand enthusiasts.
Sixth, focus on brand loyalty as an asset.
And, seventh, make branding policy your business policy and vice versa. How you manage your brand is how you manage your business.
Contributed to Branding Strategy Insider by Joan Kiddon, Partner, The Blake Project, Author of The Paradox Planet: Creating Brand Experiences For The Age Of I
At The Blake Project, we help leaders turn brand into a disciplined driver of financial performance — strengthening pricing power, competitive position, and enterprise value. Email us to start a conversation about enduring profitable growth. For The EBITDA.
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