Navigating the Future – The Funnel Approach to Retail
The future is not what it used to be. The pace of technological change might be fast, but travel businesses remain structured for linear growth, not really leveraging the people, assets, and platforms that allow them to maximise their flexibility, speed, agility, and learning. Bryan Porter, VP Consulting OpenJaw explains how we navigate this increasingly complex landscape, take back control and invent the future for ourselves.
The future is not what it used to be. We can no longer rely on the comforting assumption that the future will resemble the past. I think what we’ve seen over the last couple of days is that the pace of technological change that we’re experiencing is dizzyingly overwhelming, to the point where we can barely fathom a vision of the world 10 years from now, yet somehow we’re expected to plan for it. With so many possible future scenarios, it’s easy to understand how we can feel incapacitated by the crippling conundrum of choice that lies ahead of us.
But the future is of our own design. I’m thinking of the opening words to the book The Go-Between, the future is a foreign country, and I think we often think of the future as a place, a place that’s bearing inexorably towards us. The reality of it is that while forecasters predict the future, every day entrepreneurs are inventing it.
The time has come really for us to take back control. We don’t have to wait for the future to come to us. We can actually invent the future.
If we take a look at the technologies with which we interact with the world every day, a lot of them didn’t exist just over a decade ago. I mean taking a look at the logos behind here, these are all just about 10 years old, but have the choices that we’ve made over the past decade kept pace with the change? With so many operational demands on our day-to-day jobs within travel businesses, within airlines, where do we find the breathing space to consider and plan for the future? Before we know it, the future’s actually emerged.
If we take a look at the number of years it took for some of the major products we use every day to gain 50 million users, the time that it takes for a product to reach massive scale has itself contracted massively. Airlines took 68 years to reach 50 million users; the credit card, 28 years; the PC, 14 years; the internet itself, seven years; and then YouTube, Facebook, and Twitter, four years, three years, two years. The time that it takes for a product to reach mass adoption across most of the planet has contracted, it became a very short period.
I’m reminded of the quote by William Gibson, “The future is here. It’s just not evenly distributed.” I think that’s definitely what we’re experiencing at the moment. We are in a transformative period, but what is changing and what picture can we paint of the future ahead of us?
I think that we’ve seen over the past two days that we’re really moving from a linear world into an exponential world. We’re information enabling everything with more than 30 million devices now connected to the internet. It’s quite incredible.
Yet although we’re seeing the shift from linear to exponential, most organizations, and I think especially travel businesses, remain structured for incremental spurts that amount to linear growth, but really what we’re seeing in terms of exponential businesses is this scaling outside of traditional business boundaries by leveraging and accessing people, assets, and platforms that allow them to maximize their flexibility, their speed, their agility, and, most importantly, their learning.
Let’s take a look at Facebook, for example. Over a billion users upload all of their personal information every day. Then advertisers spend time, effort, and money to access those same users. The key aspect here is that Facebook’s employees do none of those tasks.
I think we’re also in a stage where we’re moving from big data to starting to understand AI and machine learning. I think just over the past three years, big data’s probably been the one buzzword that I’ve heard the most at conferences.
Yet for airlines and travel businesses, we’re often living in a state of data asymmetry, where silos and system constraints are preventing access to data, yet we keep hearing that big data is important. For some businesses, we hear that big data is everything. You take a look at the disruptions, and often it’s just data is the only thing on their balance sheet that they actually own.
I think for a lot of us, we’re building and collecting data without really understanding its proper application. As we move forward, we’re going to increasingly be trusting this application to machines to find patterns and insights in data without being told to look using massive cognitive processing power. It’ll ultimately help us achieve what John Carney referred to as that vision of one.
We were in a state where we’re seeing category dominance being achieved more through disruption than consolidation. I think if we look back over the past few years, we’ve seen massive consolidation in the meta and OTA space with the Ctrip acquisition of Skyscanner, with the emerging duopoly in the OTA space that we’re seeing with Priceline and Expedia, Priceline now comprising six brands reaching 95 million unique visitors every month and Expedia, 16 brands touching 105 million unique visitors.
I think on the air side, the ability for consolidation is effectively restricted by ownership laws. We’ve seen creative consolidation through alliances and joint ventures and, where possible, groups. I think IAG probably being the best example of this, where we’re seeing seven airline operating companies comprising five brands, six now with Level.
Really we’re starting to see models that are similar to the likes of Volkswagen, where we have a house of marks or a house of brands effectively reaching out to a segmented market. Yet against this backdrop, we’ve seen the rise of Uber and Airbnb; Uber with a $70 billion valuation and Airbnb, it’s $30 billion.
The real elephant in the room is are we likely to see the same kind of disruption in air? Well, arguably we already are seeing parts of it. We do have whitetail operators providing lift to other airlines, and really we could possibly see a future scenario where we have an air brand that doesn’t own or operate an airline.
At the same time, we’re seeing a change in terms of financial dominance. In my lifetime, I’ve obviously seen the world dominated by the US on a financial basis with around about a quarter of the world’s GDP. We’ve looked west for brands, for innovation, for fashion, and entertainment, but 2017 is a crucial year where we’re effectively seeing China overtake the US in terms of GDP on a purchase power parity basis, where, effectively, the currency is adjusted for its buying power.
This is a country that is roughly the same size as the US. It has twice as many students in secondary education, its GDP growth is three times that of the US, and its population is four times the size. This year, the US will export $116 billion worth of goods and services to China, but it will import $463 billion worth, making China the largest trade deficit of any partner in the US.
When we hear that phrase that the Chinese are coming, the answer’s no, the Chinese are here, and the Chinese are no longer looking west to imitate, but they’re looking west to export their own innovation. We’re living in a time where the dragon has replaced the eagle.
I think a lot of us have been playing catch-up over the last couple of years as we see traffic shift from desktop to mobile. I think, from my experience in what I’ve seen in the airline world, a lot of that traffic has actually peaked above 50%. While we’re optimizing for mobile and making sure we have apps and responsive websites, we’re not seeing the same conversion shift that matches the traffic shift, and that is incredibly concerning.
Against this backdrop, we’ve seen the rise of WeChat, WhatsApp, and Facebook Messenger, each with approximately a billion accounts. Facebook’s saying that there will be two billion active users of messaging platforms every day by the start of 2018.
This does paint a potential future where we’re starting to see a shift to conversational commerce, where we start buying tools and services and goods and services within the app that we have. I think that this creates a huge opportunity for travel. If we can establish a conversational commercial relationship with the customer at the time of booking, we can continue that conversation in journey and control the entire experience.
We’re living in the age of photo sharing across Instagram, Facebook, Snapchat, and Pinterest. I see so many photographs every day, but I think we’ve seen, especially over the last two months, a shift to video. I think Facebook said that over the last 12 months, they’ve seen three times more video produced on the platform. I’m certainly seeing that in my feed, and I’m sure you are as well.
Against this backdrop of video, we’re also seeing brands like Ted Baker hiring Guy Ritchie to direct a plot-based narrative of video shoppable brand characters. The distinction between entertainment and advertising is narrowing more than ever before.
Against this backdrop of a present that’s already incredibly complex to navigate and a future that’s barely impossible to fathom, we’re seeing an explosion of solutions available to retailers across advertising and promotion, content and experience, social and relationship management, commerce and sales, and data and management.
The first of these marketing and sales technology landscape images was produced in 2011, and it contained 150 logos. This one was released two weeks ago, and contains more than 5,000 logos. Against this backdrop, how do you choose your tool set?
Elsevier produces an academic journal of retailing that comes out on a quarterly basis. The latest issue had this research paper that focused on what they refer to as a shopper-focused decision calculus, which was effectively a mathematical model that allows retailers to better understand the effectiveness or viability of any kind of retail technology. It was a really complex model, but having read through it and battling through to understand it, what I realized in the end was their message was actually quite simple: we need to balance the consumer experience with the value derived to the retailer.
The reality of it is, from a customer perspective, needs don’t change. Materials improve, technology advances, context changes, expectations increase, and tastes shift, but needs don’t change. Against this backdrop, how do we navigate this increasingly complex landscape?
From an open door perspective, we sat and thought about this, and we’ve created the Aspire framework for engaging with our customers. First, we assess are we doing the right things in the right way? Let me ask, if we’re not, how can we change to do things in the right way?
The next step is figuring out what is required to achieve this change? Then ask ourselves, “What do we need to do in order to implement the change? How do we measure the results of our change? Importantly, how do we learn from what we’ve done so that we can feed that back into the cycle?”
I think the important thing here is actually to realize what is our strategy at the end of this? What is the end result we’re aiming for and what is the pathway we’re going to take there? A lot of it for us comes back to the funnel. What are we trying to achieve as retailers?
Well, at the top of the funnel, we’re wanting to reach out into the broader world and touch as many possible consumers with our message. Then we’re wanting to bring them to our shop, we’re wanting them to visit. It’s the act of acquiring customers.
Once they have reached our shop fronts, we want to convert those customers and make them into shoppers and drive our purchases. Then within the bottom part of the funnel, we ask ourselves, “Well, what can we do to increase the basket size? What can we do to get our customers to buy more from us?” Then, on the other side, how do we increase the average order value of those items in the basket? Finally, how do we get those customers to come back and repeat that custom?
There are so many tactics available to us, but the reality of it is the tactics aren’t sufficient. We can’t just focus on widening one part of the funnel without considering how it impacts the rest of the funnel. We need the corresponding strategies, and the strategy is ultimately roll up into an overarching retail strategy, but there’s a strategy that applies to each piece of the funnel.
The simplicity of it is that we’re only trying to achieve two things. We want to reduce friction. How do we do that? We match the customer’s propensity with our marketing. We remove clutter, we enable better targeting, we smooth out the shopping journey, we have better layouts on our shop fronts, and we make sure that we’re putting relevant product in front of our customers.
At the same time, we want to maximize the reward for the customer through price advantage, promotional effects, meet more of the customer’s needs, and ultimately make it all about the experience. It should be fun to shop. I’m going to walk us through an example of how this could potentially play out.
The retailer that I’ve got here is OpenJaw Airlines. Really at the top of the funnel, we’re spending about half a million euros every month to reach approximately 100 million customers. We’ve got a strong brand, and that has lowered our average CPM to around about €5 and we’ve got a cost per conversion of about €20.
At the top of the funnel, we start taking a look at how we can improve our strategy for reach, our channel strategy. What do we do? We take a look at the data that we have and the profiles of our best customers.
We then go out and we start looking for look-alike audiences. How do we find audiences that match those same demographic and behavioral patterns that we see in our best customers? We spend another €50,000 on acquiring roughly 10 million new customers. Because we’ve made sure that these are customers who match our existing customers, we haven’t affected our acquisition rate, our conversion still remains solid, and we see a corresponding increase in revenue.
Moving down through the funnel from an acquisition basis, we start taking a look at how we can tweak our campaigns and really improve these. As John referred to, we start using propensity modeling to make sure that we provide better targeting and more relevant campaigns for our customers. This drives up acquisition, which ultimately has an impact on revenue.
From a conversion perspective, we start taking a look at how we can actually match the landing pages to our acquisition campaigns. Let’s make sure that if we offer customer products A and B that when they get to the landing page, there are products A and B. We rollout dynamic ad landing pages that tie in directly to our acquisition campaign.
In addition to that, we make sure that we put in A/B testing. We start taking a look at how very small tweaks to the same campaign can actually improve conversion. We put in abandonment recovery. If customers leave, let’s go find them and bring them back in. We take a look at how we can improve conversions through remarketing.
At the bottom of the funnel, on basket size and average order value, it’s all about making sure that we are providing the right product at the right price, properly merchandised to the customer at the right time. These are where we can use techniques like cross-sell, upsell, switch-sell, and dynamic packaging. Ultimately, all of these strategies together have a compound effect on revenue as we move the customer down through the funnel more effectively.
As a parting thought for today, as a parting question, I just want to leave you with the thought, what future will you design today? Thank you very much.