January 26, 2010

First Look at “Flip the Funnel” -- Joseph Jaffe’s 5 Retention-Centric Strategies to Lift Sales

SUMMARY: The traditional marketing funnel is broken, says Joseph Jaffe, marketing consultant and author. Its emphasis on customer acquisition means marketers spend most of their time looking for new customers rather than nurturing the ones they already have.

Changing this marketing paradigm is the call-to-arms of Jaffe’s latest marketing book, “Flip the Funnel,” which officially launched with a keynote presentation at MarketingSherpa’s Email Summit in Miami last week. We sat down with him for an interview following his speech to learn more, and to outline five key strategies for changing your company’s marketing focus.
Everyone knows you should treat your customers well. Good customer service can encourage repeat customers, higher average order values and referrals. The Internet, blogging and social media have made customer service even more important -- some say vitally so.

But Joseph Jaffe, Chief Interrupter, Powered Inc., believes that customer service must be elevated from a back-office, secondary role to a top-level, company-wide mission. And in the current business environment, this demands a complete realignment of an age-old marketing paradigm: the funnel.

The basic marketing funnel starts wide -- acquiring as many prospects as possible through marketing campaigns and leading them on a path to conversion. As more consumers decide not to convert, the funnel narrows until customers reach the purchase point.

Jaffe argues in his new book "Flip the Funnel: How to Use Existing Customers to Gain New Ones," which he launched this month at the MarketingSherpa Email Summit, that this approach squanders resources while passing up a huge opportunity.

"At some point we’re going to run out of customers," says Jaffe. "We have to keep customers so we don’t have to always go looking for new ones."

Below, we outline why it’s important to focus on customer retention, and five ways you can get started "flipping the funnel."

-> Focus on Current Customers

Acquisition marketing is becoming more difficult as media continues to fragment and products become increasingly commoditized, Jaffe says.

"There’s always going to be diminishing returns when everybody’s doing the same thing."

Also, theoretically, major multinational brands might run out of new consumers to reach as their brands become ubiquitous. Due to these, and several other challenges explained in his book, Jaffe says the time has come to flip the marketing funnel.

- Retention oriented business

Jaffe’s phrase "flipping the funnel" essentially means spending fewer resources on acquiring new customers and spending more on acknowledging and retaining current customers. These satisfied customers, in turn, can be empowered to share their brand experience with peers and become a new customer acquisition channel.

He urges companies to apply the concept not to one effort or department -- but throughout their organizations.

"By continuing to over-index on acquisition, we are neglecting retention," Jaffe says. "The only reason we have to keep acquiring customers is because we keep losing them."

- Businesses and customers benefit

Companies who make this change, Jaffe says, will acquire new customers through referrals at a fraction of the cost acquiring the customers through paid media.

"Conventional thinking holds that it costs roughly five to 10 times the amount to acquire a new customer that it does to retain an existing one," Jaffe says in his book. "With the advent of the Internet and other electronic forms of marketing, these numbers only skew higher in favor of retention."

-> 5 Tactics to Get Started

Changing the focal point of a business is a monumental task. But like every great journey, it starts with a few small steps. Below, we’ve outlined five tactics you can use to start investing in your customers.

Tactic #1. Look at the data

The potential benefits of flipping the funnel are revealed in your current sales and marketing data. Three key metrics Jaffe cites:
o Average cost of acquisition
o Average cost of retention
o Average cost to acquire a new customer through referral

Once you’ve determined how much you’re spending to acquire new customers vs. retain existing ones, look for what Jaffe calls the imbalance: What percentage of your sales is driven by repeat customers vs. new customers?

In other words, how much you receive from customers versus how much you invest in them.

Because most companies are not tracking this, there are no benchmarks for the average cost of acquiring a new customer via referral. However, the calculation is vital to monitoring, Jaffe says.

"That’s ultimately going to become the new benchmark to compare apples to apples to determine if this is a more efficient mechanism."

Tactic #2. Adapt to the new customer service rules

If your customer service department neglects a customer, it’s more likely than ever to come back to bite you.

In his MarketingSherpa Email Summit presentation, Jaffe cited several examples of customers taking their grievances to the Web. In each case, the negative PR snowballed online and impacted the brand’s reputation.

Examples (see links below) include:
o United Breaks Guitars YouTube Video
o Motrin and Mommy Bloggers
o Domino's Employees Defiling Food

In an environment where spurned customers will be heard -- with or without your presence -- your customer service team should strive to make every customer happy.

"Better safe than sorry," Jaffe says.

Also, customer service is no longer based in a corporate office. Increasingly, it is taking place in the public domain -- on review websites and social networks. This is why Jaffe’s new rules for customer service include the edict, "Customer Service doesn’t stop at 5 p.m. on Friday."

Instead, companies must commit to staffing customer service call centers over the weekends, answering emails promptly, and maintaining a system for monitoring social media and websites on a daily basis for customer complaints that demand attention.

Adapting to this environment will likely require more resources and strategic planning. According to Jaffe’s strategy, you should be able to pull resources from your acquisition efforts.

This superior customer service strategy also feeds into Jaffe’s retention-based focus. Happy customers are more likely to continue shopping with you and refer you to friends -- which is vital to making the flipped funnel work.

Tactic #3. Recognize and reward outstanding customers

"We absolutely have to recognize and reward customers for their repeat business and word of mouth," Jaffe says. "It’s downright greedy not to."

Recognition does not always mean free products, either, Jaffe says. For example, simply welcoming a returning hotel guest, thanking them and mentioning "I see it’s been three months since your last stay," is a step in the right direction.

Other simple rewards could be:
o Status "badges" on company material (such as on a credit card or website profile page)
o Customer of the month programs
o Free upgrades

"Sometimes it’s the little things that count, and they don’t always have to be tangible," Jaffe says.

Tactic #4. Identify influencers and outstanding customers

Before you can reward your best customers, you have to know who they are. This requires integrating your company’s databases and tracking customer behavior.

Equally important are your influential customers. When ticked off, these customers have enough influence to kick up an online storm that can cause serious brand and sales damage. When delighted, they can attract new customers.

Jaffe suggests that companies identify their most influential customers and treat them as well as possible. You can start simply by asking customers (during customer service calls) simple questions such as:
o Do you blog?
o Do you have a Twitter account?
o Do you have more than xx number of Facebook friends?

Depending on the amount of customer information your team captures, you may be able to create data models and crunch numbers to identify influencers.

Keep in mind: This strategy is not a foolproof method of stopping negative online buzz. Your customer service has to be fantastic because you cannot predict every influencer who can make or break you.

Tactic #5. Convince management

The hardest part to flipping the funnel is changing a company’s organization and culture, Jaffe says. Upper management is bound to be skeptical of a complete change in its approach to customers.

Three ways you can help your case:

- Metrics and benchmarks

Provide your team's numbers and point out potential opportunities such as the cost of retention versus the cost of acquisition.

- Outside validation

Reference experts outside of your company who advocate a customer-centric approach, such as Jaffe or marketing guru Seth Godin.

- Small steps, quick wins

Start small and show quick results to get more executive support. For example, you might be able to show how a customer recognition program lifted average order values or customer referrals.

- Manage expectations

Lastly, do not oversell your case, making the strategy sound easy with predictable results. Flipping the funnel is likely to require a long-term investment and have opaque insight into future impact.

Useful links related to this article

United Breaks Guitars

Motrin Bows to Social Media Pressure from Moms

Domino's Rogue Employees

Seth Godin

Flip the Funnel

Joseph Jaffe’s blog

Powered Inc.

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