Over the last few decades, business has moved away from focusing solely on products and services. A new paradigm has entered almost every market place. This shift now focuses heavily on the customer, less on the product. Today’s businesses know that if the business plan is to be successful, it needs to operate with its customers in mind.
The Customer Development model created by Steve Blank is only one part of this change in how success is defined. Although Blank’s model is integral to the process, it is not the key to success. Blank teaches businesses of all types how to find, validate and create their customers. But it is also important to continue on your businesses’ journey by following three more steps: getting customers, keeping customers and growing customers. This is what Blank refers to as the Customer Relationship Life Cycle.
The Customer Relationship Life Cycle will teach you how to move on past the initial Customer Development phases and learn how to make sure that the customers you create end up being the customers you keep.
Based on Customer Development Model created by Steve Blank
In this article, you’ll learn about 1) the primary phases of the customer relationship life cycle, 2) how to measure success, and 3) how the customer relationship life cycle is different for different industries.
STAGES OF THE CUSTOMER RELATIONSHIP LIFE CYCLE
Learning about and validating your customers is an essential part of starting your business. But what do you do once you have successfully identified and created your main customer base?
When you reach this part of the life of your business, you can employ the Customer Relationship Life Cycle. Like the Customer Development model, this life cycle focuses on customers rather than products. There is a product life cycle that you can follow but it should never replace the customer life cycle.
In Blank’s method, there are three primary phases that you will move through during this life cycle:
Get Customers
Keep Customers
Grow Customers
While there are only three basic steps, these steps change depending on the kind of product that you are working with. This difference is generally found between physical products (like electronics or apparel) and web mobile products (those you cannot physically hold in your hand, like Netflix).
Physical Customer Relationship Life Cycle
1. Get Customers
When you have a physical product to offer your customer, you will begin to get your customers through both earned and paid media. Both of these types of media are useful for you and both should be utilized. When deployed correctly, this media will drive awareness to your product and to your company. This awareness is not enough to get customers. It must go one step further. It must create demand and drive interest.
You do not just want to send your name or your product out into the media for the public to be aware of. It needs to be attached to a value proposition that will drive customer interest. This interest will then drive customers to consider the value of your product. This consideration will ideally lead to them becoming customers.
However, you do not have a customer until a purchase has been made and money has exchanged hands. Someone who browses your website occasionally is not a customer when you are offering a physical product. You have acquired a new customer only when payment has been taken and the product has been received. This is your opportunity to not only get a customer but keep that customer and use them to grow your customer base.
2. Keep Customers
Once that customers buy from you, you must figure out how to keep them. Keeping a customer is not about building a bigger and better product to keep them coming back for more. Instead, it is all about building a relationship with them.
You can do this through several means:
Customer satisfaction surveys are a valuable tool in customer retention. Not only do they give the customer a voice but they also allow you figure out what you could be doing better. This is very valuable data for any company.
Loyalty programs are another solid way of keeping customers. Customers love to work for greater rewards. It is partly because they feel like they are getting something for nothing. It is also partly because they feel valued. A loyalty program has both merits and disadvantages. Still, it is great for retaining customers when it is deployed properly.
Customer check-in calls are also essential. This does not mean that you should spam your customer with a call center. In fact, this is a good way to turn customers off in many markets. Instead, you can offer customers an opportunity to speak directly with you about their thoughts and opinions on the product, service and your company. You do not need to call every customer. But the selection you do call will often be pleased that you asked them about what they really think. This two-way method of communication is great for driving relationships.
There are some metrics to consider during this phase:
You need to be considering your churn rate during this phase. Your customer churn rate signifies how many clients you have lost once you have reached this phase. This means that have secured a sale but now the customer has dropped out of the customer life cycle.
Your churn rate is important because if affects your customer’s lifetime value. The lifetime value of a customer is the prediction of a net profit that is attributed to your relationship with that customer. If your customers are making a single purchase before disappearing, the lifetime value of the customer is small.
3. Grow Customers
Growing your customers starts with un-bundling. The ultimate goal of maintaining your customers is to be able to ask them for referrals. But to make it easier on the customers you already have, you should offer a product that is broken down into smaller parts.
Breaking the product down into multiple offers is not a problem. You can also up-sell products. This is an opportunity to let referred customers get in on the action without the risk and then offer them the full product at an ideal price.
Cross-selling products is one step up from an up-sell. When you cross-sell your product, you are selling a product that is related to but not a part of a product that the customer previously purchased.
Once you are able to cross-sell (successfully sell two separate but related products), you will be able to as for referrals. These referrals are very valuable because they help grow your customer base
During this phase, you will want to consider the following metric:
Customer lifetime value, at noted before, is the estimate of how much money your customers will spend with you over the life time of your relationship. You can calculate this with the following equation: Lifetime= 1/Churn. You then take the Lifetime figure and put it into the following equation: Lifetime Customer Value = (Average Monthly Payment x Gross Margin %) / Churn Rate.
Web mobile Customer Relationship Life Cycle
1. Get customers
Getting your customers when you offer a web mobile product is different than when you have a physical product. Although you will still use earned and paid media to acquire the customers, there are fewer steps.
When you are using media of any kind to acquire customers, you want to be wary of the cost. You will usually measure this by cost per thousand hits. This means that you want to know roughly how much you spent on media to get around 1,000 hits. You will want to measure this a few times to make sure that you know where the customers are coming from. This prevents you from investing in media that offers little return. This also allows you to see if your most valuable traffic is organic or if you are paying for it through media activities.
Once you have acquired your customers, you need to activate them. This means collecting their data from them. At this point, you will want to note your cost per action (CPA). The cost per action agreement will relate directly to your advertising costs. A cost per action is not a cost per click. Instead, a cost per action is based on a qualifying action. For example, you might have an agreement that you only pay for advertisements that resulted in registration on your site. Cost per action is a low risk form of advertising for businesses. But it is still essential to know how much you are paying just to get people to perform an action with your site.
2. Keep Customers
Keeping customers is just as important when you offer a web mobile product. However, you will go about it slightly differently. Outreach programs are a great way to keep customers while still growing them. Outreach programs are great for current customers to share the service on social media and get a reward in return. Loyalty programs also work on the online mobile platform. You can also keep up to date with customers with blogs, emails and RSS feeds. Some companies choose to keep customers by running contests or events. These can also be bundled into your outreach program.
3. Grow Customers
Growing customers is relatively similar on internet mobile products as it is with physical products. You want to give them a chance to pick up a smaller product at smaller price. Then you can up-sell, next-sell and cross-sell to both existing and referred customers. Ultimately, you want it to be as easy as possible for your customers to send you referrals. When you get these referrals, they should always start back at the acquire phase and make their way back. This viral loop is important for the success of growing your customers.
MEASURING THE SUCCESS OF YOUR CUSTOMER RELATIONSHIP LIFE CYCLE
How you measure the success of your Customer Relationship Life Cycle is up to you. It can be simple or it can be complex. You can choose to do it over a number of years or over a number of months. All of this depends on the kind of business you run. The following metrics can be used in the Customer Relationship Life Cycle to determine your success at varying stages of the program.
It is important to perform these measurements throughout the program. This is because you do not want to keep sending customers down a leaky sales funnel. It is better to figure out where the weak points are early. Then, they can be fixed and you can reduce your churn rate.
Remember that marketing is not based on your gut instincts alone. It is a science that requires measurement.
The biggest overall metric that you will use is the cost to acquire a customer (CAC). The CAC is the total amount of money that you spend on bringing a customer to the point that they make their first purchase. These costs can include inbound marketing, free trials, conversions, inside sales, channels and partnerships.
You need to be able to achieve a balance of the CAC with the customer’s lifetime value. A balanced company will spend less on acquiring customers than it will receive of the course of the relationship with the customer. Ideally, your lifetime value should be greater than three times the CAC. In simpler terms, you can say: LTV > 3x CAC.
Additionally, you need to be recovering your CAC quickly. For true capital efficiency, you should be recovering the CAC less than 12 months from when you acquired the customer.
In addition to this metric, you should be use other metrics as you move through the life cycle. Some additional of the metrics that you can use include:
1. Get Customers
Channel Specific Traffic: This will help you determine where your traffic is coming from. This is important because looking only at your total site visits won’t tell you which channels are performing well. You should look at four main channels:
Direct channels tell you how many people navigated straight to your site.
Referrals tell you who clicked on an external link on another site.
Organic channels are visitors who found you through a search engine.
Social channels are those who found you on social media.
Cost per Lead: The cost per lead metric will depend on the strategy you use for each channel. Calculating your cost per lead requires you to divide the number of leads you received from a channel but the amount of money you spent on that channel.
Cost per Lead = Channel Spending/ Number of Leads
2. Keep Customers
Customer Retention Rate: The keep phase is a good place to measure the customer retention rate. The customer retention rate should be measured in some form throughout the life cycle. However, it is especially important here. You can measure the success of your retention programs directly against your customer retention rate. Not every program will work with every market. It is important to abandon or adapt programs that are not helping you retain customers.
3. Grow Customers
Conversions: You should be looking at the number of people who enter the lifecycle and the number who make it through the grow stage. This figure will demonstrate the number of leads that you have transformed into valuable customers.
Return on Investment: Your ROI is one of the most important metrics that you can measure. This is a different metric than the cost to acquire a customer (CAC) metric). ROI demonstrates how profitable your campaign is. To calculate your ROI, you can compare your cost per lead with your lead to close ration. Then, you compare the result with the customer lifetime value.
CUSTOMER RELATIONSHIP LIFE CYCLE FOR DIFFERENT INDUSTRIES
The Customer Relationship Life Cycle is a great example of a general cycle for managing your customers. Its generality is one of its advantages because you can apply it to many different markets. But it is important to remember that each market should be treated as a distinct market. You cannot use the same life cycle for every organization because different organizations target different customers.
Here are some examples of how different industries might adapt the Customer Relationship Life Cycle to suit its particular needs:
Technology
Cloud Services
1. Get Customers
Many cloud services in technology operate in one of two ways. Some use freemiums to increase interest. Some use partnerships to increase interest and drive demand. Most cloud computing services offer scaled packages. Customers can sign up for the amount of storage they need at the time. Cloud services then offer their customers a variety of products. The biggest products include public, private and hybrid cloud computing.
2. Keep Customers
Customers are then coaxed along by the service provider to ensure that the provider is meeting the business’ needs. Some service providers offer additional products to existing customers. Some will add on free storage to retain customers.
3. Grow Customers
Service providers then offer businesses the opportunity to scale their business within the same services through up-selling. This up-sell will usually be an increase in cloud space. Service providers also cross-sell security and mobile opportunities. By doing this, they eliminate the customer’s need to shop around for other services. At this stage, they can ask for referrals and the cycle starts again.
Finance – Consumer Banking
1. Get Customers
Banks draw in customers through the media. They often offer introductory rates to increase the number of leads that are turned into customers. Banks often offer basic savings and checking accounts to new customers. Some banks offer customers the chance for bigger introductory offers if they switch from another bank.
2. Keep Customers
Banks keep customers by offering more complex services and better rates. Banks also have customer-facing employees who work with customers on a daily basis. This is one of the ways they take feedback. Some customers build relationships with their banker and this prevents churn. Banks will often offer better rates to long term customers which incentivizes customers to stay.
3. Grow Customers
Banks will offer programs that evolve with every customer. A bank will start by offering basic products. However, it will allow customers to grow an ecosystem of financial products that are managed all in one place. This includes lending options, credit options and more advanced saving options. Banks will sometimes offer referrals to customers to encourage current customers to sign up new customers.
Web platform
1. Get Customers
Websites use a variety of media to direct customers to their page. Customers are then asked to fill out their information. This is where an acquisition becomes an activation. In some cases, the website will offer discounts on first orders just for entering an email address. This speeds up the transition. This activation sends a request to sales teams to help process a sale.
2. Keep customers
To keep customers, websites and online platforms will send email reminders. This is especially true for customers who have been activated but have not purchased. Web platforms will also encourage customers to visit social media and other sites for more information or exclusive opportunities. To keep the customer, the website has to close the sale.
3. Grow customers
Web platform companies also have to up-sell and cross-sell. It is not enough to offer one product. There must be a reason to drive customers back to the site. This is especially true if the web platform is offering a freemium product. There needs to be value in scaling up or making a purchase. Web platforms are also in a unique position because they can make the referral process relatively painless. Some web platforms offer incentives for customers who use social sharing. The platform may also reach out to certain customers who can become online influencers.
While the customer life cycle is all about growing and adapting to the customer’s changing needs, the way that you do this depends on the industry that you are in. You will notice that each option is innovating alongside the changing landscape of its customer. The landscapes in industries change at different rates and in different ways but companies in both sectors can adapt to these changes when they have meaningful relationships with their customers.
If a customer goes to a cloud service provider looking for service but the service provider does not offer the customer the opportunity to scale according to their needs, they are more likely to switch service providers to someone who is interested in their evolving business.
A customer life time cycle is not about big leaps but small hops.
CONCLUSION
Understanding the Customer Relationship Life Cycle is all about understanding the customer and their needs. Without this understanding, it is impossible to move customers past the first purchase. It is important to remember that understanding your customer does not just end with the Customer Development model. It must go into building a relationship with them as well. When you can build valuable relationships with your customers, your customers will offer more value to your company.
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