Related Links

Web Seminars

Understanding the Customer Life Cycle

The customer life cycle is a means of defining and communicating the way in which an enterprise interacts with its customers and prospects. This article introduces the customer life cycle concept and presents a generic model from which to start defining your organization's customer life cycle. The next two parts in this series will link the Corporate Information Factory (CIF) to the customer life cycle and demonstrate how the CIF's major components (data warehouse, data marts and operational data store) are used throughout this cycle in support of customer relationship management (CRM).

Have you ever experienced a high- pressure sales pitch? Buying a car can be like that. You may not have chosen the make and model, much less the dealer, but an aggressive sales representative may have you seated in the manager's office talking financing and payment options before you know it. Many who have experienced these selling situations understand the permanent animosity that can result. When a rep moves in for the close too forcefully or suggests a solution prematurely, it can do more than kill the sale. It can kill the relationship.

Perhaps the most unfortunate part of the high-pressure sales situation is that the product or service being offered could very well have been the right solution for the customer. The sales rep may have simply misunderstood the customer's environment or may have misread the customer's position in the buying cycle.

Customer relationship management requires leveraging your knowledge about each of your customers to make each touch or interaction with him or her satisfactory to the customer and profitable to you in the long run. Although CRM technology, a cross-functional business strategy and the appropriate organization structure and culture can help you do this, there is another key to managing customer interactions – understanding the customer life cycle.

The Customer Life Cycle Defined

The purpose of the customer life cycle is to define and communicate the stages through which a customer progresses when considering, purchasing and using products, and the associated business processes a company uses to move the customer through the customer life cycle. The map of CRM technology to the customer life cycle, presented in the next parts of this series, provides a mechanism for prioritizing systems projects and for understanding the information required by specific customer interactions.

The customer life cycle is depicted in Figure 1. This customer life cycle is generic; the stages shown represent thought processes for typical customers and companies. While these stages may or may not change, it is likely that the business processes that map to these stages will differ from company to company. Differences will also exist based on the product under consideration – the cycle for buying soap is different from the cycle for buying a car. We recommend that you start with this generic customer life cycle, compare it to the reality in your organization and adapt it as needed.

Figure 1: Customer Life Cycle

The Customer's Role

The customer life cycle is depicted as a circle or ellipse to represent that it is truly a cycle, one that you want your best customers to move through again and again. When a customer is considering the purchase of a product or service (a "prospect" in the early stages of the customer life cycle), he or she goes through a predictable series of thought processes. These processes, shown just inside the circle on the customer life cycle diagram in Figure 1, are as follows:

• Identify needs that may be filled by a product or service available for purchase.
• Develop awareness that your organization exists and may be able to fulfill the identified need.
• Learn more about your organization and the products and services that may fill the need.
• Consider how the products and services offered by your organization do or don't satisfy the identified need.
• Evaluate the suitability of your products and services against others (the competition) to fill the identified need.
• Decide to purchase your product or service, go to a competitor or not fill the need. We refer to this stage as the "customer moment."

Once the prospect reaches the customer moment and decides to purchase the product or service, he or she becomes an actual customer. At this point, the stages in the customer life cycle transition from a focus on the customer's purchase decisions to a focus on customer satisfaction and relationship nurturing as the customer uses the product or service he or she acquired.

As the customer moves through these product or service use stages, your organization has an increasing ability to influence customer satisfaction – either positively or negatively. Inaccurate or untimely fulfillment and poor service can result in a decision by the customer not to purchase additional products or services from you. On the other hand, satisfied customers can become customers for life – owning many products and services and generating much profit. After the customer moment, the customer life cycle stages include the following:

• Acquisition of the product or service (taking delivery of the product or service by the customer) is typically the first interaction the customer has with your organization after the purchase decision.
• Use by the customer of the products and services is typically for the life of product ownership and sometimes beyond.
• Re- entry by the customer into the customer life cycle represents a positive decision to do additional business with your organization.

The Enterprise's Role

The outermost circle (dotted lines) in Figure 1 represents the flip side of the customer stages described earlier. These are the processes that your organization undertakes to move a customer through the customer life cycle. Once you determine the mind-set, and thus the possible behaviors, of your customers as they move through the customer life cycle, you can identify the interactions or business processes your organization has with these customers. The business processes conducted by your organization fall into the following general categories: