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:
Intrude and Engage: This includes the efforts of your organization to get a prospect's attention, have that prospect become aware of your company and engage the prospect in a dialog designed to move him or her into the customer life cycle.
Acquire: Simply because prospects are aware of your organization does not guarantee that they will purchase products or services. You must work to educate the prospects about your company, and you must maintain the prospects' attention and interest as they continue with their buying decision in order to acquire them as customers.
Retain and Expand: After a prospect buys your products or services and becomes a customer, the real work begins. Many of the cross-functional business strategies designed to increase customer satisfaction and foster customer loyalty are conducted in this segment of the customer life cycle.
In a properly defined customer life cycle, the organization's processes map clearly to the customer stages, and a relationship that complements both the customer and the organization can be established.
Now that we have introduced the customer life cycle, let's take a closer look at the interaction between your products and services, the competitive environment and the various stages described earlier.
The products and services that we offer provide the foundation for our customer relationships. Successful CRM organizations are those that make the transition from a product focus to a customer focus. This does not mean that products become unimportant; it simply means that we build our products to satisfy our customers. More and more, companies are tailoring products to meet the needs of individual customers. As Figure 1 illustrates, the customer life cycle sits upon the foundation provided by the products and services offered to your customers.
The Competitive Environment
Competition is another factor that influences the customer life cycle. While the customer life cycle activities sit upon the foundation of products and services, the customer life cycle itself is driven by the principle of competition. A competitor is any enterprise that offers products and services that rival your own. The need for (and value of) CRM is influenced by the amount of competition faced by an organization or industry. The competitive environment as the driving factor in CRM is represented in the customer life cycle by the position of competition in Figure 1 (underlying the entire structure).
There are two ways a customer or prospect can drop out of the customer life cycle. The first is termed "loss" and is the capture of a prospect by a competitor at or before the customer moment. Losses are a fact of doing business. While losses are not desirable, if the loss occurs on the prospect's first trip through the customer life cycle, it is at least acceptable. Note that the longer (and more expensive) the sales cycle and the higher the potential sale, the less true the prior statement becomes. These prospects have just entered your competitor's customer life cycle.
The second way for a customer to leave can be more severe than a simple loss; this is attrition. Attrition is the erosion of customer loyalty after the customer moment leading to their capture by a competitor. These are customers – not prospects. Frequently, the company has made a significant investment in the relationship. An organization can lose a valuable customer due to its inability to provide acceptable service. Not only will the organization have a hard time winning them back, it may also have to deal with questions of other disgruntled customers if they are vocal about their dissatisfaction in the local business community. Worse than that, they may influence prospects to avoid contact. Like the lost prospects, these lost customers enter your competitor's customer life cycle.
The Customer Touch Zone
A customer touch is any interaction between the customer and the enterprise. Either the company or the customer can initiate customer touches. The management part of CRM is the identification and administration of all customer interactions to the satisfaction of the customer and the long-term profit of the organization.
Each customer touch, real time or through batch processes, face-to-face or through other media, is accounted for in the customer life cycle. We illustrate this with the customer touch zone. This zone is portrayed in Figure 1 as a circle on the immediate outside of the enterprise and is where all interactions with the customer happen. When popular sports figures are doing well at their game, they are said to be "in the zone." Successful CRM companies should be in the zone as well – the customer touch zone.
Once you have a customer in the customer life cycle, every interaction occurring in the customer touch zone is a tremendous opportunity to build trust and reinforce the relationship. Figure 2 depicts trust in the customer life cycle and illustrates the key role it plays. Trust plays such a role because it can be gained or lost anywhere in the customer life cycle, and the loss of trust is detrimental to CRM strategies. Trust is fragile. It can take a long time to build trust, but only a moment to destroy it.
Figure 2: Trust in the Customer Life Cycle
The customer life cycle is a vehicle for defining and communicating the stages a customer goes through when purchasing and using products/services. It also aids in understanding the associated business processes that an organization might use to move the customer through the customer life cycle.
The second part of this series will map the business operations and business management components of the Corporate Information Factory to the customer life cycle. The third part will map business intelligence components to the customer life cycle. Each will illustrate the types of customer information generated, captured and used at various points in the cycle and how the Corporate Information Factory components support those actions.
This article is an excerpt from the authors' upcoming book entitled Building the Customer-Centric Enterprise – Data Warehousing Techniques for Supporting Customer Relationship Management, published by John Wiley & Sons. Parts 2 and 3 of this series will continue in Claudia Imhoff's monthly column.