Managing the

Customer Life-cycle

Prepared and presented by,

Iqra Babar, Lecturer,
Department of Management Sciences,
University of Gujrat
 Define Customer Life Cycle?

The customer lifecycle is a representation of the

stages that customers go through in their
relationship with a company, as seen from
the company’s perspective.
 Stages of the Customer Life Cycle

 Customer acquisition
• Acquiring profitable customers, as measured
by customer lifetime value (CLV), should be
the goal of CRM strategy.
 Customer retention
• Aims to keep a high proportion of current
customers by reducing customer defections
 Customer development
• Aims to increase the value of those retained
customers to the company
Customer Acquisition
 When is Customer Acquisition Important

 New product launches

 New business start-ups
 For small businesses with ambitions to
grow, customer acquisition is often as
important as customer retention.
 A one-customer company
 Such as, BICC (now part of Balfour Beatty plc) that supplied copper
cable to a single customer, British Telecom (BT), could double its
customer base by acquiring one more customer. On the other hand, the
loss of that single customer could spell the end of the company. With
such high stakes, all too often companies feel compelled to acquire as
many new customers as possible
 When is Customer Acquisition Important

 Even with careful targeted and well-developed and

implemented customer retention plans, customers still
need replacing.
• In a B2C context, customers may shift out of a targeted demographic
as they age and progress through the family lifecycle; their personal
circumstances may change and they no longer need and find value in
your product; they may even
die.
• In a B2B context, you may lose corporate customers due to merger
and acquisition by another company with alternative supplier
preferences; they may have stopped producing the goods and
services for which your company provided input; they may have
ceased trading.
 Marketing one-off purchases
• Heart transplants, funerals
 What is New Customer?

 A customer can be new in one of two

senses:

• New-to-category customers
– are customers who have either identified a new need or
have found a new category of solution for an existing
need
• New-to-company
– are customers are won from competitors
 New-to-category customers - A new need

These are customers who have either identified

 A new need
• Consider the B2C context. When a couple have their first
child, they have a completely new set of needs connected to
the growth and nurturing of their child. This includes baby
clothes, food, toys, for example. As the child grows, the
parents are faced with additional new-to-category decisions,
such as pre-school and elementary education.
• Consider the B2B context. For example, when
McDonald’s entered the coffee shop market, they needed to
develop a new set of supplier relationships.
New-to-category customers - New category of solution
for an existing need

 Have found a new category of solution for an

existing need
• Consider the B2C context. Cell phones have now
largely replaced card- or cash-operated pay phones in
many countries. Environmentally friendlier detergents
and diapers are growing their share of market, as
customers switch from current solutions
• Consider the B2B context. For example, some
clothing manufacturers now use computer-operated
sewing machines to perform tasks that were previously
performed by skilled labor and manual sewing
machines.
 New-to-company

 The second category of new customers is

customers who are new to the company.
• New-to-company customers are won from
competitors. They might switch to your company
because they feel you offer a better solution or
because they value variety. Generally, new-to-
company customers are the only option for
growing customer numbers in mature markets
where there are very few new-to-category
customers.
New-to-company (cont…)

• For Example: In developed economies, new

players in grocery retail can only succeed by
winning customers from established operators.
They would not expect to convert those customers
completely but to win a share of their spending by
offering better customer-perceived value in one or
more of important categories. Once the customer
is in-store, the retailer will use merchandising
techniques such as point-of-sale signs and
displays to increase spending.
Customer Retention
 Negative & Positive Customer Retention Strategies

An important distinction can be made between strategies

that lock the customer in by penalizing their exit from a
relationship, and strategies that reward a customer for
remaining in a relationship. The former are generally
considered negative, and the latter positive customer
retention strategies.
 Negative & Positive Customer Retention Strategies

 Create exit barriers

(high switching
costs)
 Enforce the contract
 Extract switching
penalties
 Negative Customer Retention Strategies

Example: In a B2C context, Banks have commonly recruited new customers with
attractive discounted interest rates. Customers wishing to switch retail banks find
that it is less simple than anticipated: early redemption and exit penalties have to be
reorganized

Disadvantages

• Produce customers who feel trapped.

• They are likely to agitate to be freed from their obligations,
taking up much management time.
• Also, they are likely to utter negative word of-mouth; in
today’s social media environment it is easier than ever and
highly effective.
• They are unlikely to do further business with that supplier.
 Positive Customer Retention Strategies

 Delight customers
 Create customer-
perceived added value
 What is Customer Delight?

Customer delight = P > E

 

where
P = Perception of Performance
E = Expectation
 3 Ways to Create Customer-perceived Added Value

 loyalty schemes
 customer clubs
 sales promotions
 
 3 Ways to Create Customer-perceived Added Value

 loyalty schemes
 A loyalty scheme is a customer management
programme that offers delayed or immediate
incremental rewards to customers for their
cumulative patronage.
 The more a customer spends, the higher the
reward
 Example: American Airlines knew that filling empty seats would have
little impact on costs, but could impact significantly on future demand.
The airline searched its reservation system, SABRE, for details of
frequent fliers in order to offer them the reward of free flights.
 
 3 Ways to Create Customer-perceived Added Value

 Customer clubs
 A customer club is a company-run Membership
organization that offers a range of value-adding
benefits exclusively to members. 
 To become a member and obtain benefits, clubs
require customers to register. With these personal
details, the company is able to begin interaction with
customers, learn more about them, and develop
customized offers and services for them.
 Example: IKEA FAMILY, the home furnishing retailer’s club, offers
members discounts on selected IKEA products, restaurant and service
offers, a free home furnishing magazine quarterly, free product
insurance and news updates via email.
 3 Ways to Create Customer-perceived Added Value

 Sales promotions
 Offer only temporary enhancements to customer-
experienced value
– Money off coupons – customers receive coupons, or cut coupons out of
newspapers or a products packaging that enables them to buy the product
next time at a reduced price
– Competitions – buying the product will allow the customer to take part in a
chance to win a prize
– Discount vouchers – a voucher (like a money off coupon)
– Free gifts – a free product when buy another product
– Point of sale materials – e.g. posters, display stands – ways of presenting
the product in its best way or show the customer that the product is there.

 
Customer Development
 Customer Development

 Customer development is the process of

growing the value of retained customers.
• Cross-sell and
• Up-sell products

 Cross-selling

 Cross-selling, which aims to grow share-of-wallet,

can be defined as follows:

Cross-selling is selling additional products and

services to an existing customer.

 For example, if you encourage a customer who just

bought a new phone to get a protective case at the
same time, that’s a cross-selling win.
 Up-selling
Up-selling is selling higher priced or higher margin
products and services to an existing customer.

 Challenges
 Companies should down-sell where appropriate - This
means identifying and providing lower cost solutions to the
customers’ problems, even if it means making a
smaller margin.
 Customers may regard up-selling as opportunistic and
exploitative, thereby reducing the level of trust they have in
the supplier, and putting the relationship at risk.