The Conversion Funnel Santiago Gallino – Tuck School of Business Toni Moreno – Kellogg School of Management January 2017 July 2013 – LBS – London, UK

Learning Modules 1. Demand forecasting 2. Inventory Decisions 3. Assortment Planning 4. Pricing Decisions 5. The omnichannel customer 6. Fulfilling omnichannel demand 7. Omnichannel journeys 8. Supporting an omnichannel strategy

M5.2 Introduction 1 We will refer to the conversion funnel to the different steps that need to happen between the customer wanting to buy a product and leaving our store with that product. The conversion funnel for customers used to be simple and retailers had a good strategy to take actions to improve this. Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.2 The omnichannel Funnel This process has a clear parallel when we think about it in the context of online stores The challenge for Omni channel retailers is that customers don’t necessarily follow a straight path in one of the two funnel Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.2 The omnichannel Funnel Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.2 Funnel’s Levels 3 There is a big advantage to be the preferred entry point in this funnel. This happens whether the entry is virtual or physical. Customers might take a some time to decide where to buy groceries but then that becomes the routine. Being the place where customers start there online search is immensely valuable Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.2 Funnel’s Levels 3 From Level 1 to 2 The key is assortment and easy to navigate. Here leveraging on the omnichannel experience can be an advantage Once things are at the 3rd level the probability of purchase is very high. The retailer should focus on this customers. The investment and effort at this stage would very likely pay off Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.2 Funnel’s Levels 3 Loosing transactions in the check out process is painful and expensive. Think of all the service and effort provided by the retailer to get to this point. This will translate into nothing if the transaction is not closed. Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.2 When things go wrong 4 What can go wrong: Customers don’t know me or don’t consider me as an option. I am not in the consideration set The assortment or availability is inadequate. The store is not easy to navigate The customer support is poor The exit experience is slow, low quality, push customers to have second thoughts. Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.2 Funnel Investments 5 200,000 30% 60,000 1.2% 10% 6,000 40% 2,400 Customer Base Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.2 Funnel Investments 5 How money spend at different steps of the funnel can have very different return on investment. Where to put the next dollar is not trivial. Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.2 Customer Base 6 Think of Customer Life time Value. When looking at clues on what customer like look at customers who bought. Customers that return And big gaps in the funnel Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face