What Is the Customer Life Cycle?

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What Is the Customer Life Cycle?
The customer life cycle is the series of steps that identifies the dynamics of the relationship between your business and your customer over a period of time. Simply stated, this means getting a potential customer’s attention, teaching them what you have to offer, turning them into a paying customer and then keeping them as a loyal customer whose satisfaction with the product or service urges other customers to join the cycle. The goal of effective CRM is to get the customer to move through the cycle again and again. The stages include acquisition, activation, retention and renewal.

Acquisition

Customer acquisition is the sales and marketing process of attracting new prospects and ideally includes the collection of data such as contact information, credit card number and product preferences, which can be analyzed to produce leverage for future purchasing; i.e., retention.

Activation

Customer acquisition includes activation – the process of converting existing prospects into new customers. However, a random purchase does not an acquired customer make! A customer who purchases from your business is NOT an acquisition unless a “switching-in cost” is involved… a specific long-term gain – or perceived prevention of loss – to this customer for deliberately choosing your product or service over those of your competitors.

Retention

Customer retention is the ability to keep customers buying from you. Add-on selling and the use of rewards, gifts and free services have been shown to increase retention levels.

Renewal

Customer retention includes renewal, which is essential to sustaining business growth and profitability. Retention requires a significant “switching-out cost” – a bonus for continuing to purchase from you, coupled with a significant loss for defecting (exit barriers). To manage the retention process, it is necessary to understand what influences repeat-purchasing decisions. Expectations, actual experience, perceived value and satisfaction are some of the key elements that have an impact on repeat purchasing.

If You Build It They Will Come

One of the most critical measures that companies take to build a formidable life cycle is to offer incentives to their prospects and customers. An incentive is not a price discount; there is a very important distinction between the two. A simple price discount may increase present or short-term demand only. In contrast, incentives increase demand not only for the present time, but also for the future.

Under what conditions will a discount offered in the current period also increase demand in the future? Customers come back in the future because they might find it convenient to buy in the same store, feel more certain about the product they have already tried, find it troublesome to learn a new store layout, or feel unwilling to learn a different type of machine or operation procedure.

For example, time and effort is required for making phone calls and completing paperwork if a customer wants to switch from one wireless phone service to another. Time and effort is also required for learning a different store layout if a consumer switches to a new supermarket. In addition to the time and effort spent, the consumer might also feel uncertain about the quality of new services or products.

The time, effort, money and uncertainty that may be part of the switching process from one company’s products or services to another’s are all switching costs. Without them, a customer’s future purchases will not likely be related to current ones.

This is why a simple price discount, which is a product-centric strategy, only works in the short-term. Incentives, on the other hand, include switching costs, are customer-centric in nature and are designed to build long-term customer relationships.

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