MANAGING THE CUSTOMER LIFECYCLE

The customer lifecycle is a representation of the stages that customers go through in their
relationship with a company. The core stages in the customer lifecycle are customer acquisition,
customer retention, and customer development. Companies develop strategies and processes to move
customers through these stages, often using CRM technologies, in order to identify and acquire new
customers, grow their value to the business, and retain them for the long term. The focus of this chapter
is on customer acquisition, the first stage of the customer lifecycle, and how to acquire profitable
customers with a strong likelihood of being profitable over time. It is important for companies to
carefully target and acquire new customers in order to avoid problems of retention and low margins.
Even with careful customer retention plans, customer acquisition is still necessary to replace natural
attrition.

A number of important questions have to be answered when a company puts together a customer
acquisition plan. These questions concern targets, channels and offers as below:

1 Which prospects (potential new customers) will be targeted?

2 How will these prospects be approached?
3 What offer will be made?

WHAT IS A NEW CUSTOMER?

A customer can be new in one of two senses:

1 New to the product category.

2 New to the company.

New-to-category

New-to-category customers are customers who are new to a particular product or service category,
either because they have identified a new need or have found a new category of solution for an existing
need. They may be using established products for new purposes, or adopting a completely new product
or service for the first time. These customers may require new resources or relationships in order to
make use of the product or service.

New-to-company

New-to-company customers are those who switch to a company from its competitors. They may do so
because they feel the company offers a better solution or because they value variety. New-to-company
customers are important in mature markets where there are few new-to-category customers. Acquiring
new-to-company customers can be expensive, particularly if they are strongly committed to their
current supplier, as this represents high switching costs. However, lower value customers with weaker
commitments to their current supplier may be more attractive prospects.

PORFOLIO PURCHASING

Portfolio purchasing refers to the behavior of customers who have a choice of several equivalent
alternatives for a product or service and may choose to buy from multiple suppliers within that choice
set. This can make it difficult for companies to identify new customers, as a customer who has not made
a purchase from a particular supplier in a while may still consider them to be part of their portfolio of
options. In order to compete for a larger share of a customer's spending, companies may aim to increase
their share of wallet (SOW) by offering special deals or incentives to encourage customers to choose
them over other alternatives.

Strategic switching

Strategic switching refers to the behavior of customers who switch their allegiances from one supplier to
another in order to get a better deal or offer. This can be a problem for companies, as they may acquire
new customers through promotional offers or incentives, but then lose them again when another
company offers a better deal. In order to combat this, companies may use strategies such as offering
staged rebates or promotions that are spread out over a longer period of time, rather than providing an
immediate incentive. In portfolio markets, where customers have a choice of several more or less
equivalent alternatives, it may be necessary to treat a customer who has not purchased for a certain
period of time as a new customer in order to try to reactivate them.

The Conversion Model

The Conversion Model® is a tool developed by Jan Hofmeyr to help assess whether a customer is likely
to switch to another provider. It divides customers into four categories based on their level of
commitment: entrenched, average, shallow, and convertible. Entrenched customers are unlikely to
switch in the foreseeable future, while average customers are unlikely to change in the short term but
may switch in the medium term. Shallow customers have a lower commitment than average and may
already be considering alternatives. Convertible customers are the most likely to defect. The model is
based on the premise that customers who are not committed are more likely to be open to switching to
another provider, and that commitment is influenced by satisfaction with the brand or offer, the
attractiveness of alternatives, and involvement in the brand or offer.

Hofmeyr suggests that companies can measure customer commitment by asking just four questions:

1 How happy are you with < whatever it is > ?

2 Is this relationship something that you care about?
3 Is there any other < whatever it is > that appeals to you?
4 If so, how different is the one < whatever > from the other?

Non-customers are also segmented according to commitment scores into four availability subsets:
available, ambivalent, weakly unavailable and strongly unavailable. There are two clusters that are open
and two that are unavailable, as follows:

Open non-customers:

• Available non-customers prefer the alternative to their current offer though they have not
yet switched, and are ready to switch.
• Ambivalent non-customers are as attracted to the alternative as they are to their current
brand.

Unavailable non-customers:

• Weakly unavailable non-customers prefer their current brands.

• Strongly unavailable non-customers have a strong preference for their current brands.
 Companies should focus on customer acquisition when the number of open non-customers is
greater than the number of uncommitted customers, and should use customer data to target acquisition
efforts accurately to avoid wasting marketing budget and alienating prospects. Companies should also
nurture their relationships with committed customers and address the causes of low commitment
among uncommitted customers. Additionally, the availability and appeal of an offer can impact whether
companies should appeal to open non-customers, and customer experience research can help
companies improve their offer and customer experience.

PROSPECTING

Prospecting in the context of CRM refers to the process of searching for opportunities to
generate additional value for a company. It is a result of the market segmentation and targeting process,
in which a heterogeneous market is divided into homogenous subsets, and certain segments or
individuals are chosen to be approached with an offer. This process is specifically discussed in the
context of business-to-business relationships.

Business-to-business prospecting

Prospecting in business-to-business (B2B) involves searching for potential customers or

opportunities that can generate value for the company. This process is based on market segmentation,
which divides the market into homogenous groups, and targeting, which involves choosing which
segments to approach with an offer. In B2B, marketers often generate leads, which are potential
customers, and salespeople follow up on qualified leads. Companies can use direct channels, such as
salespeople, direct mail, email, and telemarketing, or indirect channels, such as partners or
intermediaries, or bought time and space in media, to initiate contact with leads.

Sources of business-to-business leads

Businesses can generate leads for potential new customers through a variety of sources, including
satisfied customers providing referrals, search engines, company websites, portals, and social media
platforms such as Facebook and LinkedIn. These leads can then be qualified to determine their potential
value and the best channels for initiating contact can be chosen. Direct-to-customer channels such as
salespeople, direct mail, email, and telemarketing, or indirect channels using intermediaries or media
can be used to approach potential customers.

Online content and interactivity can help generate leads for businesses and that companies can use
registration to gather information and qualify leads.

Networking can be defined as follows:

Networking is the process of establishing and maintaining business-related personal relationships.

The different sources of leads for business-to-business (B2B) companies, including personal networks,
referral networks, promotional activities, and advertising. It mentions that professional networking is
now often done online through social media, and that in some countries personal connections are
necessary for doing business. B2B companies generally do little advertising, but when they do, it is
typically in targeted specialist media.
An important activity for some B2B companies is publicity. Publicity is an outcome of public relations
(PR) activity. Publicity can be defined as follows:

Publicity is the generation of free editorial content relevant to a company’s interests.

The methods for acquiring new customers in the business-to-business (B2B) market, including referral
networks, promotional activities, advertising, public relations (PR), and email marketing. PR can
generate publicity for a company through unpaid coverage in various media, but requires someone to
be paid to write and submit the story. Email marketing is described as a flexible and cheap tool that can
be personalized and linked to other follow-up efforts, but can also be subject to resistance as spam. The
importance of permission-based email and incentivizing prospects to provide their email addresses is
also emphasized.

"Lists" refers to compiled lists of prospects for a company's products or services. These lists can be
developed from various sources such as telephone directories, business lists, and chamber of commerce
memberships.

"Canvassing" refers to the practice of making unsolicited calls, also known as cold calls, to potential
customers in order to generate leads or make sales.

"Telemarketing" refers to the use of the telephone or other electronic media, such as email or web chat,
to identify and qualify leads, as well as for other customer management purposes such as cross-selling,
handling complaints, and winning back at-risk or churned customers. Telemarketing is often done by
staff in company-owned customer contact centers or outsourced to third parties.

Business-to-consumer lead generation

Advertising

Advertising is the creation and delivery of messages to targeted audiences through the purchase of time
or space in media owned by others. Advertising aims to achieve either cognitive or affective
communication objectives. Cognitive objectives include raising awareness, developing understanding,
and generating knowledge. Affective objectives include developing a liking for the product and
generating preference. In high involvement purchasing contexts, where the product or its usage context
is personally significant to the consumer, prospects will typically progress through a learn-feel-do
process before making a purchase. High involvement advertising can use long copy and comparison
advertising to influence prospects. In low involvement contexts, where the product or its usage context
is relatively unimportant, prospects are unlikely to go through a complex learn-feel-do process and are
more likely to simply become aware of the product and buy it. The role of advertising for low
involvement products is to build and maintain brand awareness and recognition through the use of
short copy and repetition in low involvement media. Advertisers consider both message and media
issues when attempting to generate new customers.

Message

Message refers to the specific content or theme of an advertisement. The execution of the message
refers to the way in which the basic copy strategy is delivered, such as through a slice-of-life scenario,
testimonial, or comparison to other products. A "call to action" is a suggestion for the audience to take a
specific action, such as clipping a coupon or registering online, in order to generate leads that can be
followed up.

Pre-testing messages on a sample of potential new customers is a way to improve the chances of an ad
achieving its objectives. Among the criteria you can assess are the following:

• Recall. How much of the ad can the sample recall?

• Comprehension. Does the sample understand the ad?
• Credibility. Is the message believable?
• Feelings evoked. How does the sample feel about the ad?
• Intention-to-buy. How likely is it that the sample will buy?

Media

Media refers to the various channels or platforms through which advertisements are delivered to a
targeted audience. These channels can include print media such as magazines, newspapers, and
billboards, as well as electronic media like television, radio, and digital platforms like websites and social
media. In the process of selecting media for advertising campaigns, advertisers consider factors such as
the reach of the media (the number of people who are exposed to the ad at least once) and the
frequency of the ad (the average number of times that a targeted audience member is exposed to the
ad or campaign). The total number of exposures is calculated by multiplying reach by frequency.
Advertisers may also consider the type of response that they want to evoke in their audience and the
media that are most likely to achieve this response.

You can measure the effectiveness of customer acquisition efforts through response rates and
conversion rates.

• Response rates measure the number of coupons returned, email click-throughs, or calls
requesting information.
• Conversion rates measure the percentage of sales made from returned coupons, purchases
made from email click-throughs, or proposals submitted from calls requesting information.

Sales promotion