The “customer life cycle” is a theory used to describe the steps a customer goes through when considering, purchasing, using, and maintaining loyalty to a product or service.
Understanding the customer life-cycle has become a must for many CRM, sales and marketing analysts, many of which strive to develop tools to break the customer life cycle into distinct stages, and to get the customer to move through the cycle again and again.
Customer Management = Natural Science?
Implicit in the notion of “customer life cycle” is that customers follow a cycle analogous to that of living organisms, as if there were “laws” akin to the laws of nature by which living organisms appear to grow, and that the different stages of customer development are a function of time.
It’s not even difficult to find organizations that categorically believe there is an inexorable movement towards an equilibrium in customer attrition, as if the process of building customer relationships were reminiscent of the “rise and fall of populations on the road to extinction”*.
One cannot doubt that management science has frequently drawn on the natural sciences for analogies designed to help in the understanding of economic phenomena.
Nevertheless, the available evidence does not support the theory that customers have a life cycle characterized by an irreversible transition through stages of development similar to those of living organisms. Indeed, just the opposite conclusion must be drawn: the development of customers does not proceed according to the same “deterministic” laws as does that of living organisms.
So, Why the Analogy Persists?…
… and why there is still a demand for a life cycle theory of the customer?
First, I agree with Penrose* that in “the notion that a firm is an organism akin to biological organisms, (and) since all such organisms have something in com¬mon, we can use our knowledge of biological organisms to gain more insight into the firm”. If we agree with this, trying to explain one series of events to another very different series of events will help us better to understand the nature of the latter, which presumably is less well understood than the former.
Second, the characteristic use of biological analogies in the field of business management has traditionally suggested explanations of events that do not depend upon the conscious willed decisions of people inside the organizations. The non-motivated behavior of organisms or the mere belief that motivation does not make any difference, releases the management of the organization from the burden of customer complexity and the need to actively compete for customers.
Reality Calls For A Different Approach
We have every reason whatsoever for thinking that the growth of a company customer base is willed by those who make the decisions of the company and are themselves part of the organization, and the proof of this lies in the fact that no one can describe the development of any given company or explain how it came to be the size it is except in terms of decisions taken by individual men.
Such decisions, to be sure, are constrained by the environment and by the capacity of the men who make them, but “we know of no natural “laws” predetermining men’s choices, nor have we as yet any established basis for suspecting the existence of such laws”*.
In summary, to liken the customer life cycle to an organism cycle and then attempt to explain its customer base growth by reference to the laws of growth of biological organisms is an ill-founded procedure. And not only ill-founded, this type of reasoning about customer management diverts attention from the importance of management decisions and obscures the fact that companies are institutions created by men to serve the purposes and direction given by men decisions.
Republished with author’s permission from original post.
(*) Penrose wrote in 1952 the paper “Biological Analogies in the Theory of the Firm”, published in The American Economic Review, which has inspired this post.
In our 2001 book, Customer WinBack, my colleague Jill Griffin and I examined, in detail, the back end of the customer life cycle. We identified seven stages:
– Suspect – Early interest in product/service
– Prospect – Defined/specific interest; narrowed set for consideration
– New/First Time/Reacquired – Welcomed, build value proposition
– Retained – Ongoing purchase; upsell and/or cross sell
– At-Risk – Potential for (voluntary) churn; efforts to stabilize and save
– Lost – No longer purchasing, or using products/services
– Recovered/Won Back – Redefined value proposition; second lifetime value
We don’t expect customers to move through these stages in an orderly, organic way because they are human, acting from both functional and emotional perspectives according to individual criteria. This is not “The Origin of The Species”. Though the customer decision-making dynamics, and the speed involved, may have changed in the past decade, there is nothing in your content which suggests that a flexible approach to customer life cycle wouldn’t be beneficial for any business.
Michael thanks for your contribution and debate.
Generally speaking my key point here is that the notion of “life cycle” (as many other explanations supported in biology and pure science models) don’t make any good for a better understanding of the more complex management issues.
From a management (thus practical) perspective, to use the idea of “life cycle” to describe the stages through which customers pass, basically involves a “birth” and “death” process which simply does not match reality. It’s true that things have changed radically from 2001, mainly because of the role played by uncertainty, that’s why I wouldn’t recommend using such similarity.
Another criticism to be made is that “life cycle” conveys the idea that managers actions are worthless, since customers will start and finish their relationship with the company regardless of what management does to build a value-based relationship. I can’t agree with this either. Companies convinced of this approach will only implement bad customer-centered strategies.
Of course you can use the idea of “life cycle” as a metaphor to help managers reduce the complexity of customer management, but them the concept loses its force.
I guess I’m agreeing to disagree. Connecting science and customers seems pretty tenuous, so your hypothesis doesn’t compute very well for me. I’m focused on decision-making dynamics at different points in the relationship between customer and supplier, hence life cycle. Our principal reason for writing Customer WinBack was that management often had little idea about many elements of customer behavior, including a) how to effectively onboard new customers and begin the relationship, b) when, i.e. under what circumstances, customers were at risk for defection and c) the financial opportunities represented by winning back formerly attractive customers rather than simply forgetting about them. Understanding, for example, the power of expressed, unresolved/poorly resolved, and unexpressed complaints on customer behavior is a significant life cycle issue.