CRM and Customer Life Stages: A Tale of Two Bakeries

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By Michael Lowenstein, Managing Director, Customer Retention Associates

The CRM findings of the Chartered Institute of Marketing (C.I.M.), namely that less than one out of ten British adults believed that relational marketing gave them more value than the suppliers providing the benefits, and that they also don’t want these organizations driving the relationship, shouldn’t surprise many.

Customers are savvy, fickle, demanding, and value-directed. They’re certainly intelligent enough to know the difference between a program with components that create genuine value and one that’s little more than a give-away or an old-fashioned snake oil repeat sales pitch.

In recent presentations and client assignments, I’ve spent a great deal of time on customer life stages; and the more I’ve been considering it, the more convinced I am that most companies don’t look at the complete spectrum of a customer’s life. Just as relatively few companies have developed algorithms and processes for estimating lifetime customer revenue value, so also few companies look at how CRM programs have to be modified depending on the customer’s life stage.

Companies in industries like banking, telecom, and automotive, for instance, are still rather notorious for devoting large proportions of their marketing budgets to new customer conquest, and then treating customers pretty passively once in the fold. More recently, we’ve witnessed the furious and expensive prospecting for new customers among e-commerce companies, only to lose them, through poor follow-up and service, at an almost equally furious pace. Research companies like Jupiter and Forrester have noted how attraction activity contrasts with the low level service these customers tend to receive after coming on-board. C.I.M. also noted that under twenty percent of Internet customers in their study felt that messaging personalization was important to them, a technique that some marketers believe is ‘the answer’ in relationship marketing. These are clear CRM breakdowns as customers move through their life stages.

We view CRM as a never-ending process that embraces mutually beneficial and value-producing relationships for all customers, i.e. past, present and potential, and internal, intermediate and external, creating not only enticements to become customers, but also barriers to exit or churn. Most particularly, it makes perfect sense (at least to us) that companies have either sub-CRM programs or elements in their overall CRM activity plan that addresses each customer’s life stage.

As we see them, there are three phases of a complete customer life cycle: Targeting/Acquisition, Retention/Loyalty, and Lost/Won-Back. This translates to seven stages of a customer’s life with a supplier:

  • Suspect
  • Prospect (Active/Developmental)
  • Customer (New/Recovered)
  • Retained/Loyal Customer
  • At-Risk Customer (Attrition)
  • Defected/Lost Customer
  • Recovered/Won-Back Customer

Here’s how the life stages would work. Taking, as an example, a town with two bakeries, the Suspect stage would begin when a potential customer first desires baked goods. That desire may come on its own, or it may have been encouraged or stimulated by one or both of the bakeries advertising/promoting their wares.

The potential customer then becomes a Prospect, going through a screening process, sorting through perceptions of each bakery’s image and reputation, array and quality of desired products and services, awareness of prices, and other information, such as referrals, advertising or promotional materials. The Prospect is considered either Active or Developmental, depending upon how strong the purchase desire for baked goods is at this stage.

Then, the final bakery selection is made, and the Prospect becomes a New Customer. The bakery’s complete value proposition – personalized service and communication, product quality and range, and price, to cite a few of the key elements – creates a level of emotional commitment within the customer. If that commitment is strong enough, the New Customer will make repeat purchases over time and become a Retained/Loyal Customer. Frequency and volume of purchase will mark the customer’s long-term value to the bakery.

If any negative perception develops regarding an important aspect of value – product quality, price, communication, or service – the New Customer or the Retained/Loyal Customer will enter an attrition mode and become an At-Risk Customer. This is where the bakery should be most aware of customer perceptions, because the undermining of perceived value is the strongest contributor to exit or churn.

Should the customer’s problems or complaints with the chosen baker not be resolved, or if the problems or complaints become stronger than the benefits provided, then the customer is Lost, or Defected, most likely to the other bakery in town, if the desire for baked goods is still strong.

Assuming the bakery is like most companies, once the customer has been Lost, rather minimal resources or effort will be devoted to either understanding the reasons for the customer’s exit or winning the customer back. Speaking personally, this is something I’ve experienced over and over again. Let’s be positive, though. Let’s say the bakery does know the customer on a one-to-one basis, does make an effort to know why the customer left, does have a CRM process to win the customer back, and does succeed in getting the customer to return. Then, the customer could be considered Recovered or Won-Back. During this win-back process, the customer might be viewed as a Prospect again, especially if the value proposition needs to be completely re-expressed.

Most bakeries, again like most companies, typically set their CRM goals around increased spending and purchase frequency, and to increased profitability and market share. They do this by offering something of presumed positive value so that the customer will have a stronger emotional relationship and identification with the products and the bakery itself. But that’s where the majority of CRM programs begin and end. They tend to be rather one-dimensional.

CRM programs should also function as a referral vehicle to attract new customers. This can happen in two ways. The New Customer or the Retained/Loyal Customer will offer positive word-of-mouth to Suspects and Prospects, i.e. friends, colleagues, and relatives. The other way is that what the bakery offers in products or CRM is so strong and attractive that non-customers learn of it and are drawn in. Their experiences, assuming they’re positive, then serve to repeat this process.

How does the bakery’s CRM program respond when the customer becomes At-Risk?. If it’s an organic program, the bakery will have collected and interpreted insights during its customers’ earlier life stages. If service or product problems surface, the bakery should be able to have intensified contact and communication with these customers to stabilize the bond and commitment. The bakery may also offer some type of value incentive to the At-Risk customer to help re-establish the relationship.

As we’ve often said, relationship dynamics, especially when the customer has been Lost or Defected, are quite different than when the customer is active. At the point of exit, the customer has become emotionally detached from the bakery. There is no longer sufficient value in product or service for the customer to remain. Especially if the customer has had high volume and/or frequent purchase activity, once the customer has been identified as Lost, the bakery has to do two things: 1) find out why the customer has left, and 2) have CRM techniques and processes in place to recover the customer. If the root cause of departure has been a product or service issue, re-stating the value proposition and offering some ‘please come back’ incentives may be enough to re-establish the relationship. If the customer has moved, had a lifestyle change (such as going on a diet), or been lured away by lower prices, any recovery effort will probably not be worthwhile or successful. If won-back, the customer is Recovered.

The kind of focus on customer segmentation by life stage almost absolutely necessitates that companies have a single, integrated view of customers that’s enterprise-wide. Do they? A recent study by Forrester Research showed that, while 92% of companies say this is critical (44%) or very important (48%), only 12% of companies say they have it fully (2%) or somewhat (10%). So, for most companies, having a CRM program that flexes to accommodate each stage of a customer’s life will be a challenge at minimum. For even more companies, having a CRM program that includes Lost customers is non-existent.

Companies’ CRM programs tend to focus principally on attracting new customers or rewarding customers who are either new or who spend a lot or spend frequently, mostly in the short term. That’s fine and completely appropriate, but it makes secondary many customer groups and life stages which may offer attractive revenue and profit opportunity. It may, as well, completely bypass some customer groups – notably those who are At-Risk or Defected.

Several centuries ago, Takeda Shingen, a samurai general in medieval Japan, wrote: “A person with deep far-sightedness will survey both the beginning and the end of a situation, and continually consider its every facet as important.” We believe the same kind of thinking should be applied to CRM and customer life stages. Every life stage represents attractive potential revenue and profit, as well as learning which affects the other stages. Every life stage is important.

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10th Sep 2001 08:15

The presented life stages are more a technical perspective on loyalty/retaining the customer.
I would argue that you could overlay a completely different set of life stage (e.g. Single, Couple, Family, Retiree). In each of these life stages the person had different demands and would be marketed in a different way, addressing the specific needs.
It is difficult to find for a company the "right" set of applicable life stages, but most often it needs to come out of their respective business.

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avatar
10th Sep 2001 08:15

The presented life stages are more a technical perspective on loyalty/retaining the customer.
I would argue that you could overlay a completely different set of life stage (e.g. Single, Couple, Family, Retiree). In each of these life stages the person had different demands and would be marketed in a different way, addressing the specific needs.
It is difficult to find for a company the "right" set of applicable life stages, but most often it needs to come out of their respective business.

Thanks (0)