Perceived Value and Customer Life Stages: A Tale of Two Bakeries

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A few years ago, findings of the Chartered Institute of Marketing (C.I.M.) in the U.K., 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

Irrespective of size, it’s essential for all companies, whether online or offline, b2b or b2c, or profit or non-profit, to understand customer life stages; and the more I’ve been considering it, the more convinced I am that most organizations don’t look at the complete spectrum of a customer’s life, especially from an emotional perspective. Just as relatively few companies have developed algorithms and processes for estimating lifetime customer revenue value, so also few companies realize how experience and value initiatives, programs and processes 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 acquisition, which some of them like to label as ‘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, continuity communication, and service, at an almost equally furious pace. Numerous consulting and research companies have noted how attraction activity contrasts with the low level of service these customers tend to receive after coming on-board. These are clear perceived breakdowns as customers move through their life stages.

Experience and value creation should be viewed as a never-ending process that embraces mutually beneficial relationships for all customers, i.e. past, present and potential, and internal, intermediate and external, creating not only enticements to become customers, but also proactive deterrents to exit or churn. Most particularly, it makes perfect sense (at least to me) that companies have either programs or elements in their overall experience management and activity plans that address what is required and desired for each customer and at each life stage.

As we see them, there are three fundamental 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 work. Taking, as an example, a town with two bakeries, the Suspect stage would begin when a potential customer first desires baked goods, such as a delicious crème-filled doughnut, fruit pie, strawberry shortcake, or specialty artisan bread. That desire may come on its own, or it may have been encouraged or stimulated by one or both of the bakeries advertising and promoting their tasty 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, eventually becoming an advocate for, and bonding with, the preferred bakery. Frequency, variety, 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, array, price, communication, or service – the New Customer or the Retained/Loyal Customer can, or 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 bakery 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 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 online and bricks-and-mortar companies, typically set their customer behavior 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 programs begin and end. They tend to be rather one-dimensional, rather than push for advocacy and bonding.

These 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 relationship 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 experience program respond when the customer becomes At-Risk?. If it’s an organic and kinetic program, the bakery will have collected and interpreted sufficient, actionable 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 customer-centric bakery has to do two things: 1) find out why the customer has left, and 2) have communication techniques and processes in place to help drive recovery. 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 (or may not) be enough to re-establish the relationship. If the customer has moved, had a lifestyle change (such as going on a diet, or learning that he/she has a pastry allergy), 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 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 relationship and experience program that flexes to accommodate each stage of a customer’s life will be a challenge at minimum. For even more companies, having a program that includes Lost customers is non-existent.

Companies’ relationship 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.

For those who doubt whether this life cycle concept works equally well for online, as well as offline, customers, consider this: the “rules” for stages of online customer behavior are pretty much the same as for offline customers – – but online life stages can sometimes occur with almost the speed of a key stroke.

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 customer life stages. Every life stage represents attractive potential revenue and profit, and also risk, as well as learning which affects the other stages. Every life stage is important.

Michael Lowenstein, PhD CMC
Michael Lowenstein, PhD CMC, specializes in customer and employee experience research/strategy consulting, and brand, customer, and employee commitment and advocacy behavior research, consulting, and training. He has authored seven stakeholder-centric strategy books and 400+ articles, white papers and blogs. In 2018, he was named to CustomerThink's Hall of Fame.

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