The Four Phases of Customer Evolution

There are only four customer phases, and all customers will be in one of these at all times. There are many erudite articles written about the interdependence between sales processes and buying processes, but – being primarily focused on new customer acquisition – many miss a critical consideration; The Four Phases of Customer Evolution.

Customers go through three Growing Phases and one Dying Phase. You should understand the phases and particularly the reason why customers more from the Growth Phases to the Dying Phase. The critical thing is not just to recognize which phase they are in – that is fairly obvious – but to understand that if they are to become a customer, then they will inevitably morph from phase to phase. It is only a matter of time.

The four phases are:

1. Prospect
2. Customer
3. Loyal Customer
4. Former Customer

The fundamental substance of all the management theory, strategic advice and best practice writings about customer management, key account management or account planning any should be to accelerate phase transition through the Growing Phases; phase 1, 2 and 3, and then decelerate the inevitable transition to phase 4, the Dying Phase.

Here are some facts to chew over:

• The cost of new customer acquisition is 500% that of customer retention
• Increasing customer retention by 2% equates to decreasing costs by 10%
• Reducing customer defections by 5% can increase profitability by up to 125% (depending on industry).

The Road to Customer Defection

Before you read the rest of this section, I want you to consider two different scenarios. Each is real, and I hope you will easily identify with them both.

Scenario A: In the first scenario you (or your company) are selling a product or service to your customer. This scenario should be real and should relate specifically to your existing company. Stop and think for a minute about why prior customers have stopped doing business with you.

• Why have they left you or your company?
• What do you think are the top three reasons?
• Write them down – now, before you play out the next scenario.

Scenario B: In the second scenario; you are the customer. We might all be forgiven for thinking that being a customer is easier than being a supplier – but that is not always the case.

In this scenario you need to think about the last time you (or your company) decided to stop doing business with a particular source.

If you take a personal perspective on this, that source might be a restaurant, a clothing store, a hairdresser, an online bookstore, an airline, or an online community. From the perspective of your company, the source may be your stationery provider, IT services supplier, sales trainer, telecommunication equipment vendor, or any one of the many other options.

Combine the personal and company perspectives (if you have both) and write down the top three reasons why you defected.

If you are like most people, the answer to Scenario A will start with price or product features, and the answer to Scenario B is more likely to be more focused on ‘how I was treated’.

The problem is that in the real world these two scenarios converge and the disconnect between what suppliers think and the opinions of their customers send their relationship hurtling from a Growing Phase straight into the spiral of the Dying Phase.

Why do customers leave? The reality might be different than you think.

According to Rightnow Technologies (now part of Oracle):

• 73% of customers leave because they are dissatisfied with customer service, but companies think just 21% leave for this reason.
• Company thinks that nearly half (48%) leave because of price, when in fact, according to the customer perspective, this happens only 25% of the time.

The U.S. Small Business Administration and the U.S. Chamber of Commerce support these findings. According to their research:

• 68% leave because they are upset with the treatment they’ve received (Customer Service)
• 14% are dissatisfied with the product or service

Serenade your customer

The lyrics here are from the 1978 song Love don’t live here anymore by Rose Royce, an American soul and R&B group who had a number of hit singles in the 1970s. While the reference to this song might be a little contrived – I’m a sucker for musical references – the sentiment is well expressed and relevant.

If your customers leave you, it is because they don’t love you, and that is usually because they feel unloved. The reason they don’t love you is usually because they feel you have abandoned them. If there is a vacancy – your competitor will rush to fill it, and your customer will inevitably become a former customer.

It is hard to accept that the reason your customers don’t love us is because you have underserved them. It is much easier if you can point to price or product features as the determinants of defection. That hurts less because you can convince yourself that there is little you could have done about it.

Ask yourself this. If you knew that the customer was going to move from a Growing Phase to the Dying Phase, and there was nothing that you could do about price or product features, what actions would you take to serve them better so they would stay?

So what are you waiting for? Write down your answers – and take action now.