In customer relationship management (CRM), customer lifecycle is a term used to describe the progression of steps a customer goes through when considering, purchasing, using and maintaining loyalty to a product or service.
Customer lifecycle stages
Marketing analysts Jim Sterne and Matt Cutler have developed a matrix that breaks the customer lifecycle into five distinct steps: reach, acquisition, conversion, retention and loyalty. In layman's terms, this means getting a potential customer's attention, teaching them what a company has 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 customer lifecycle is often depicted by an ellipse, representing the fact that customer retention truly is a cycle and the goal of effective CRM is to get the customer to move through the cycle again and again.
Breaking down each of the five customer lifecycle stages even further:
In this stage, a customer first develops awareness of a company’s product or service. The awareness could have come from social media, advertisements, by word of mouth from friends or from other means. The customer may or may not have an immediate need for the product or service, however, the objective is to create the association between the brand and a current or future need.
While the prior stage created a loose association between the brand and a customer’s need, the acquisition stage deepens that association. In this stage, customers learn more about the company’s offerings from visits to the website, conversations with sales representatives or by experiencing or testing products in a store.
This is the stage where customers purchase a product or service. It is important to understand the customers’ key purchasing criteria, then position products to have a clear advantage over competitive offerings.
Now that a new customer has been acquired, the focus is to help the customer derive satisfaction and value from the product and services. A company can achieve this by using surveys and phone calls to understand customer satisfaction and address any issues that arise. Customer retention is important as studies show that it costs less to retain existing customers than to acquire new ones.
In the loyalty stage, satisfied customers continue using the product or continue renewing their term for subscription-based offerings. Loyal customers may opt for additional services or purchase higher-priced options. In addition, loyal customers will recommend the products or services to colleagues, friends and family.
Importance of the customer lifecycle
Understanding the customer lifecycle is essential to the ongoing success and growth of a business. The lifecycle should be overseen as a whole and not segmented into silos. For example, if a business focuses all of its attention on the early stages (e.g., reach, acquisition, conversion), but disregards the post-purchase stages, it will suffer in the long run -- the business will successfully acquire new customers, but those customers will become unsatisfied and leave, creating customer churn.
Businesses should improve and optimize all five lifecycle stages, rather than focusing on a few. Businesses can use metrics to measure the success of each stage. For example:
- Reach: Impressions, branded searches, website visits.
- Acquisition: Leads, inquiries.
- Conversion: Lead Conversion rates or opportunity-to-close rates.
- Retention: Renewal rates.
- Loyalty: Net promoter scores (NPS) or customer satisfaction (CSAT) scores.
These metrics can be tracked over time (e.g., quarter over quarter, year over year), as well as against industry-wide benchmarks. Comparing business metrics against competitors (i.e., if that data is publicly available) can help address competitive gaps in products or service offerings.