Death of the Sales Funnel

by in Marketing

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The sales funnel has been a cornerstone of sales and marketing teams for decades. The funnel, a visual representation of how sales progresses from brand awareness to final closure, is intended to metaphorically illustrate the archetypal sales process (Figure 1). This process begins with a customer’s awareness of a set of multiple potential vendors (i.e., at the broad end of the funnel). Over time, and in response to sales and marketing efforts, the customer systematically whittles vendors down (i.e., throughout the gradual narrowing of the funnel) to the point where the customer hones in on one final vendor. Sales and marketing professionals leverage the funnel, which most commonly depicts five key stages of a customer’s lifecycle: awareness, familiarity, consideration, purchase, and loyalty, to pinpoint bottlenecks in the sales process, predict deal win rates, and determine optimal flow rates.  

Given that the sales funnel pre-dates World War II, it’s not surprising that it might be better suited for the history books than for 21st century sales organizations. In 2009, McKinsey proposed that the funnel is overly simplistic and fails to provide a realistic view of the customer lifecycle. In a metaphorical sense, the funnel was leaky and needed to undergo some plastic surgery, so to speak.

The primary impetus behind McKinsey’s call for a structural change to our perspective on selling was an evaluation of the purchase decisions of nearly 20,000 consumers across five industries and three continents. The survey revealed that the customer journey is not rigidly linear, as depicted in the sales funnel model, but rather circular. It is a network of touch points, decisions, and opportunities that are either appropriated or rejected by the buyer. In response, McKinsey put forth a new model to reflect the times, the Consumer Decision Journey or “CDJ” (Figure 2), which involves four phases: initial consideration (when a consumer considers an initial set of brands), active evaluation (when a consumer researches various offerings and adds/removes them from the evaluative pool), closure (when a customer commits to a purchase), and post purchase (where up-selling and other lucrative sales opportunities are entertained).

McKinsey’s appeal to take a fresh perspective on the sales process was motivated by three primary drivers:

1. Increased brand exposure

As it turns out, the wide opening of the traditional sales funnel is misleading in our modern era. McKinsey’s 2009 evaluation revealed the fact that media fragmentation (which has given rise to a multitude of different mobile, web, and other channels by which one is able to consume sales and marketing content), coupled with the proliferation of product offerings (which have added complexity to the decision-making process), has heightened the cognitive load experienced by consumers when making a purchase decision, with the effect that they actually consider a reduced number of brands as compared to earlier days. McKinsey explains, “Faced with a plethora of choices and communications, consumers tend to fall back on the limited set of brands that have made it through the wilderness of messages.”

2. Emergence of “pull” marketing tactics

Traditionally, marketing efforts have focused on “push” tactics (whereby marketers promote their offerings to consumers regardless of whether they have expressed a desire or interest). More recently, we’ve seen the emergence of “pull” tactics (whereby customers are drawn to a brand as a result of less intrusive tactics aimed at increasing brand awareness, including, for example, search engine optimization). Case in point: McKinsey found that that two-thirds of the touch points during the “active-evaluation phase” entail consumer-driven (i.e., “pull”) marketing tactics such as word of mouth referrals and Internet reviews). These tactics effectively interrupt the decision-making process (so as to plug or clot the sales funnel, so to speak) and cause the consumer to journey back and forth between the traditional stages. No longer is the selling process linear. By way of example, a Google-initiated study of banking consumers in France found that only 44% of consumers ended up purchasing from a brand they initially considered.

3. Increased consumer-driven research

In today’s selling world, the tapered shape of the sales funnel does not accurately represent (metaphorically) today’s sales and marketing processes, nor does it suitably portray consumer behavior. We have embarked on the Age of the Consumer, an era that has seen consumers usurp comparatively more ownership over the sales process. Thanks in large part to the emergence of new media forms, which have increased the content that consumers are exposed to, consumers now engage in more research throughout the sales process, and, in turn, feel more empowered than ever. This additional research results in consumers adding brands to the selection pool as they journey through the decision-making process. McKinsey summarizes, “The number of brands under consideration during the active-evaluation phase may now actually expand rather than narrow as consumers seek information and shop a category.” Interestingly, the average number of brands added differs across various industries. McKinsey’s 2009 evaluation revealed that consumers actively evaluating personal computers add an average of 1 brand to their initial-consideration set of 1.7, whereas automobile consumers add an average of 2.2 to their initial consideration set of 3.8.

In October 2015, McKinsey once again offered evidence that its previous take on the CDJ was outdated. It proposed a newer model, “the accelerated CDJ”, which bears many similarities to the 2009 version, but involves a compression or elimination of the consideration and evaluation phases of the purchase process (Figure 3).

The revision to McKinsey’s original CDJ model was motivated by the emergence of big data and the advent of a slew of new tools that have been created to help sales and marketing professionals leverage big data to enhance purchase processes. These tools have effectively empowered sales and marketing professionals to seize some control over of the sales process back from customers, which, in turn, has enabled them to more actively shape the consumer experience. Ironically, this more relevant perspective on today’s selling process realigns the CDJ to a shape more akin to that of a funnel. That is, consumer behavior is trending towards that of consumers being “forced” or induced down a predefined path (rather than being afforded the ability to navigate the journey circuitously on their own accord). This induction process, McKinsey explains, can “catapult a consumer right to the loyalty phase of the relationship.”

According to McKinsey, a company’s ability (or inability) to exploit the full potential of the accelerated CDJ to enhance the sales process depends on four capabilities.

1. Automation of the sales process

McKinsey advocates automation of the sales process when possible so as to “[enable] simple, useful, and increasingly engaging experiences.” Automation can be accomplished by implementing features such as self-serve purchasing capabilities or virtual sales agents powered by artificial intelligence. Customer engagement platform [24]7 Chat, for example, leverages predictive models, intelligence, and rich content to render sales conversations more intuitive and effective.

2. Proactive personalization

McKinsey also emphasizes the immense value of gleaning insight from past consumer touchpoints so as to more effectively personalize the sales process.  Indeed, a study by BloomReach found that 87% of consumers prefer to buy from brands that are able to personalize sales experiences most effectively. Companies such as Teralytics can assist with these personalization efforts. Teralytics leverages big data to provide organizations with behavioral insight about prospective and existing customers in order to target optimal audience segments, pinpoint new customers, and measure ROI.

3. Contextual interaction

Realizing the full potential of the accelerated CDJ is also dependent on a firm’s ability to understand where a customer is in the decision-making journey so as to optimize delivery of the next set of interactions. To accomplish this, organizations have started to leverage tools such as those offered by Lattice Engines, a big data company that provides products aimed at identifying opportunities for cross-selling or up-selling by monitoring past and present buying signals.

4. Journey innovation

Finally, McKinsey underscores the value of a company’s ability to shape the decision-making journey so that it is innovative and specific to each user (i.e., it reflects how a specific user has interacted with the product in the past). It’s 4 times less expensive to upsell existing customers than acquire new ones. Firms that are able to pinpoint users that are most likely to purchase add-on bells and whistles or complementary offerings gain competitive advantage. Tools such as Exacaster can help companies realize this valuable source of revenue. Exacaster, a big data predictive analytics company, uses machine-learning algorithms to initiate marketing campaigns that are informed by real-time triggers based on a complex set of rules.

 

There’s no doubt that sales and marketing professionals have a library of different big data tools at their disposal. But, as McKinsey cautions, “simply collecting big data does not unleash its potential value.” A 2014 McKinsey survey revealed that only 18% of companies believe they have the skills necessary to gather and use insights effectively.  In order to leverage the full potential of big data, a litany of different business stakeholders is required. Specifically, four key roles must be filled: data scientists (who ensure best-in-class models and algorithms), analytic consultants (who understand how data can optimize business decision processes), data strategists (who can create road maps for the future), and a head of analytics (who can drive the execution of strategy and provide a communication conduit across IT, analytics, and business departments).

Developing a deep knowledge of how consumers make decisions is the first step to optimizing sales and marketing processes. A recent survey spearheaded by the Association of National Advertisers found that top performers understand the entire customer journey much better than their peers do (20% versus 6%, respectively). As McKinsey has uncovered, the forever-changing nature of the CDJ causes companies to constantly adopt new tactics and processes. The real heroes of the sales and marketing organizations will be the ones who understand the accelerated CDJ as well as how to use big data to optimize it – but only for the time being.  It likely won’t be long before the sales and marketing texts require another update. Until then.

Figure 1: The archetypal sales funnel

 

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Figure 2: McKinsey’s 2009 CDJ model

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Figure 3: McKinsey’s 2015 CDJ model

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About The Author

Rebecca Hinds
Rebecca Hinds - View more articles

Rebecca Hinds graduated from Stanford University in 2014 with a M.S. in Management Science and Engineering. In 2013, Rebecca co-founded Stratio, a semi-conductor company developing infrared sensors. The company was selected by the Kairos Society as one of the 50 most innovative student-run businesses in the world.