And Three Reasons Why

Right now, when most business owners and marketers think about how customers interact with their businesses, they think in terms of a funnel that looks something like this:

The idea behind a marketing funnel is very simple - a large volume of customers get to know your product, and some of them become interested. Then some of these interested people consider buying. Finally, some of these people buy and become your loyal customers.

Along the way, some people may “drop off” from the funnel, and marketers need to recover these “drop-outs” as much as possible via advertising.

The simplicity of the funnel makes perfect sense even to a layperson. Personally, it became one of my guiding lights in my consulting engagements to help my clients improve their customer experiences.

However, as digital channels become one of the main mediums for customers to find information for products and services, their decision-making process have become significantly more iterative and complex.

This increasing complexity makes the funnel analogy (which was developed way back in 1924) more and more insufficient in fully capturing the dynamic nature of the modern customer experience.

I will go so far as to say that if you are still using the funnel to measure the effectiveness of your digital strategy, you are probably getting inaccurate insights about how customers actually behave - and you are probably making incorrect business decisions as a result.

In this article, I will show you three reasons why this is the case.

Reason 1: The funnel is not compatible with the new, digital customer experience

While the original purpose of the funnel was to provide business analysts with a simplified model of customer experiences, it is now too simple to support marketing decisions in a digital world.

In recent years, because of the overwhelming amount of information made available to the customers, the power of consumer decisions has shifted significantly from firms to customers.

This means that firms can no longer produce a product, run advertisements, and expect customers to flood through the door, as a traditional marketing funnel would suggest.

Instead, they have to design the product, branding, and messaging with their customers’ specific needs and wants in mind. Firms must now constantly engage with the customers with not only their product offerings, but also relevant information to keep customers interested in their brand.

The complexity in modern marketing is the main reason that funnels are no longer the best model for firms to use to make decisions. While the funnel is great at providing an overarching view of the customer decision process, it does not accurately capture the new, customer-centric model for three main reasons:

1) First of all, when customers today are making a purchase decision, they usually compare and contrast offerings from multiple companies.

This means that, as a marketer, you will be competing with many other companies for the customer’s attention and money, and the funnel fails to capture the dynamics of this competition.

2) Secondly, modern customers, especially millennials, want to be more involved with the business and the values it represents (you can read more about this here).

This means that companies should start to focus more and more on engaging customers with a variety of content on their website, instead of merely convincing them to make a purchase. The traditional funnel does not incorporate these engagement objectives into consideration.

3) Last but not least, with the onset of the digital age, massive amounts of information became available to customers via channels such as social media and review websites.

The vast improvement in the availability of information has made the customer journey to purchase significantly longer, and much more iterative (more on this in the next two reasons). These factors can no longer be captured by a linear conception of the marketing funnel.

For all of these reasons, the firm-centric funnel analogy can no longer meet the need of a consumer-centric, iterative framework. As such, this model must be modified or changed.  

Reason 2: The funnel does not capture the full customer journey

The second reason the funnel is no longer sufficient stems directly from the first reason. Funnels usually paint an extremely simple picture of how customers interact with your company through digital channels, and they miss key components of the complete customer journey.

For example, a classical digital marketing funnel for ecommerce might look like the following:

1. Customers visit the homepage of your ecommerce store

2. Some of these customers then visit a product page in your store

3. Some of these customers enter checkout

4. Some of those customers completes the checkout process and buys your product

While this funnel captured the essence of a customer’s purchase experience in your store, it does not capture their full experience.

For example, the funnel cannot capture a customer journey like this one:

1. A customer visits an ecommerce store

2. The customer visits a product page because she is interested in the product

3. The customer added the product to her cart just to see how expensive it is

4. The customer exits the website because she does not completely trust the product yet

5. The customer compares alternatives on Amazon and other review platforms

6. The customer visits the website again to read more about the story of the company

7. The customer makes a decision to finally purchase a product

Even this journey I described above is a simplified version of how customers actually make a purchase in the real world, and the restrictive nature of the funnel will inevitably fail to capture the multi-session, cross-platform nature of your online customer journey.

When making business decisions, a simplified model of your customer behavior based on the traditional funnel may lead to drastically different conclusions for why your customers do what they do.

Let’s use cart abandonment as an example.

In a funnel-centric world, the best way to avoid funnel abandonment is through checkout recovery mechanisms such as follow-up emails and retargeting campaigns with Facebook and Google Display ads.

However, as illustrated in the more realistic customer journey described above (and the article linked here), people may abandon their cart simply because they were comparing prices or looking at a product. They may never have had any intent of purchasing in the first place.

That’s why, while you can recover some customers who experienced checkout issues or just simply got distracted, what you really need to do is to convince those people that are still in their comparison and evaluation stage that your product is the best one in their consideration set - a tactic that is not supported by the funnel. This leads to Reason 3.

Reason 3: The funnel doesn’t capture the iterative nature of the customer experience

The final reason ties very closely with the previous one. Not only does the funnel not fully capture your entire customer experience, it also does not cover the “iterative” nature of their interaction with your business.

The funnel view of the customer journey describes customer experiences in a linear fashion: the customer comes in, becomes more and more engaged, and ultimately purchases.

In reality, however, the decision processes of your customers are not so linear. In fact, it is possible for a customer to fall back to a previous stage of engagement. Even if a firm is actively running ads to reach that specific customer, more ads are not always better if an ad does not give the customer the right information they need at the right time to make their decision.

This concept of the iterative customer journey is thoroughly discussed in an article published by McKinsey couple of years ago, and I would strongly recommend that you read it.

The funnel’s inability to represent iterative experiences will result in two major decision problems for businesses.

First of all, it makes companies believe that more advertisements are always better than less because you will always be able to push customers through the funnel and convert.

However, when you start to consider the iterative nature of the customer journey, you will realize that bad or misplaced advertisements will actually decrease customer’s tendency to purchase, therefore harming the revenue potential of the company.

Secondly, the concept of funnels favors converting customers (pushing them through the funnel) much more than engaging with customers.

In reality, the decision to engage versus convert should be made based on a sophisticated ROI analysis taking into account two factors:

1) The current engagement levels of your customers, and

2) The conversion rate for customers at each of the engagement levels

Only with this kind of consideration can marketers truly optimize their messaging to their customers - and funnels do not provide you with a good framework to analyze this.

The way out - an iterative framework of customer journey

As we illustrated in this article, the funnel is a marketing framework that is so deeply ingrained in the minds of almost all marketers - but it is outdated and insufficient for the modern needs of a more customer-centric and interactive marketing world.

However, criticizing an existing solution without offering an alternative is never very helpful.

That’s why in the next few articles I publish, I will present a new marketing framework that we use at Humanlytics that solves many of the challenges of the funnel model that I presented in this article.

To stay updated on those articles, please follow our publication at Analytics for Humans, or sign up for our monthly newsletter. You can also follow us on social media channels such as Facebook and Twitter to get more news and updates about what is coming next.

Until next time!