Ultimate Guide to Customer Lifecycle Management- Part 1: Strategy, Definitions & KPIs
This is part 1 of the Customer Lifecycle series. In this part:
- What is Customer Lifecycle Management?
- Customer Lifecycle Management Strategy
- Customer lifecycle stages: Definitions & KPIs
Customer Lifecycle Management (CLM) is becoming increasingly more important to businesses as they become more customer-centric and realize the best way to reach their business goals is to create highly relevant experiences based on where the customer is in their relationship with them. These include interactions from first impressions to post-purchase and the ongoing relationship with the customers.
What is Customer Lifecycle Management?
Customer Lifecycle Management refers to a company’s strategy, processes and campaigns that help move a customer through various stages of their lifecycle with the company. It generally comprises of several customized touchpoints that help a customer become more engaged with the company’s offering and in the process become more loyal over time.
There are many benefits that such an approach to customers has for a business and this methodology can assist with some of the most important company goals such as:
- Better understand their customers- This methodology gives companies a unique lens through which to see their customers which enables them to better understand how customers’ needs change with time and how to best provide relevant information and offers.
- Reducing the cost of Acquisition- Focusing the advertising spend on only customers who are in the awareness stage reduces overall customer acquisition cost. In addition, the follow-up interaction with customers who were targeted by ads will ensure that the CAC spent is most likely to lead to an acquisition by systematically moving customers from awareness to leads and finally to first-time customers. Finally, by increasing the referrals from existing customers, the business gains low-cost, high intent leads that are easier to nudge to the first transaction.
- Increase customer retention and Lifetime Value (LTV)- It is well understood that it is often cheaper to retain existing customers and grow their LTV with the company than to continuously acquire new ones. The lifecycle framework allows teams to identify gaps in the experience and points of churn for existing customers and alleviate them. In addition to retention, customer LTV can be improved by increasing the Depth of Spend (DOS) and Share of Wallet of individual customers over time. We will discuss more on these and more tactics in the later posts.
- Prioritize investment on certain segments- This methodology allows the business to objectively assess which lifecycle stages represent the largest Growth and Revenue opportunities and focus its resources for the highest strategically aligned ROI.
But how is CLM different than traditional marketing?
CLM by nature is more complicated and requires investment in capability and tooling that is much more complex. 3 things make LCM fundamentally different from traditional marketing:
- LC campaigns are mostly based on a trigger- Triggers are actions that the customer takes or does not take, for example signing up to emails or not purchasing within x days. The trigger can be actioned right away, for example sending a welcome email after the first purchase, or with a delay such as a replenishment reminder or anniversary email. The connection between the trigger and the campaigns makes LC communications more appropriate and timely to the customer.
- LC messages are targeted or even personalized- The LC campaigns take into account the context of the customer in their customer journey which makes them more relevant to the customers’ needs. For example, the offers on the website are different for a customer who is in the Discovery versus the Engagement stage and are presented with different information and Calls To Action.
- LC campaigns are executed on mostly owned channels- Since much of the customer’s lifecycle is past their first purchase, they are best served by the company’s owned channels such as; Email, social, Website or App and Push notifications. These channels can be integrated to have more context of the customer’s needs and preferences making them highly targetable and effective.
Customer Lifecycle Management Strategy
The details of how companies interact with each customer and how they prioritize efforts depend highly on the business goals, resources and tactics available but most importantly on how customer lifecycle stages are defined and tracked. Here are some steps to get started:
First, start with creating a strategic CLM map. This map will include the overall stages of the customer journey, your goals and KPIs for each stage as well as the Channels and tactics you will be using:
- Define the relevant stages your customer goes through and use both qualitative and quantitative insights to create some common definitions such as active customer and SOW benchmark.
- Align on what is the goal of each stage for your business and which KPIs you will be using to measure your success.
- Map your channels & available tactics to each stage- Think carefully of which channels and tactics best match your goals and your customers’ preferences.
Once you have your overall map, you can prioritize your investment in the most promising stages & tactics. For this, you will need to start mapping the gaps of the current marketing activity, analyze % of costumers that drop off from each stage of LC and the resources required to make a measurable improvement at each stage. It is important to also remember that improving the overall customer experience will have a measurable impact on the effectiveness of your new campaigns.
You can use your prioritized list of tactics to also identify the technical foundations you will need. Whether it’s new tooling to centralize all customer data and create universal identification between your systems, or improved tracking and analysis of your customers in real-time.
Finally, don’t forget continuous optimization! As you build more of your customer lifecycle system, you will get more signals from customer feedback and customer data to see which additional stages you can optimize.
Customer lifecycle stages: Definitions & KPIs
Depending on your business you may decide to deprioritize or further expand on each stage but most companies consider the following important stages:
- Awareness- This is the first stage of the customer lifecycle. When the customer for the first time becomes aware of your company and the services you provide. This first impression is generally achieved through one of the upper funnel marketing channels such as TV, Print, Adwords or social media. The goal in this stage is to create a clear and memorable view for the customer and guide them to the website where they can further learn about your business and consider signing up. The most common metrics for this stage are Impression shares, Brand recall and eventually website traffic from unknown/ new users.
- Discovery- This stage starts with customers who are deciding to signup on your website and concludes with them making their first purchase. For many new customers, these 2 steps may not happen subsequently, leaving the business with high intent leads that can be nudged to become a customer. The eventual goal of this stage is to show the value of the service to a new customer through the experience of that first purchase. Depending on the business, metrics tracked here can be % of leads that make their first purchase, start a trial or pay for the first use of a service. By digging down to the source of the leads and % acquired, teams can optimize their investment into channels with the highest lead conversion and identify gaps in their Marketing plan.
- New Customer Onboarding- The onboarding stage helps create an ongoing habit for a customer who has tried the service once. To ensure that the customer understands the value of the offering, businesses aim to provide the best experience possible for a set number of interactions or a set length of time that they know is going to have a lasting effect on the customers’ behaviour. It is important to note that the quicker this habit is reached the higher the retention and value of a new customer will be and hence this stage is one of the most important times in a customer’s lifecycle to invest in. Once this habit moment is identified the metric most tracked is the % of first-time customers who reach the habit moment in a given time.
- Engagement- At this point, the customer has a good understanding of why they chose a given company, however, it is important to ensure that they keep having a good experience and that they are still communicated to regularly and with high relevance. The goal at this stage is to maintain the relationship that has been established with a customer, whether it is a frequency of interaction, Depth of spend or set usage of services. The metrics will follow this goal closely by looking at the % of customers who stayed at a consistent engagement after having established a habit. It is important to note that the metric for engagement is often the inverse of your definition of churn.
- Growth- Every business is looking to deepen its engagement and increase profits from existing customers. The goal of this stage will be closely related to the established habit and what else the company can offer to a customer. It can be to add users to a platform, sell additional paid features, increase usage of services or nudge customers to buy more products. These are often measured by a % increase in the given goal over a set period of time, for example, % of additional licences added for a customer per year or % of new categories sold to a customer in 6 months.
- Loyalty- This stage although a natural next stage from Engagement and Growth, actually takes root from much earlier in the customer lifecycle and requires uninterrupted exceptional customer experience to reach. At this stage, the customer has been fully satisfied with the company for so long that they no longer consider other options even if the company’s service is no longer the cheaper or more convenient option. The goal at this stage is to keep customers’ loyalty by ensuring that their devotion is not unappreciated. There are several metrics for this stage, mostly related to customer satisfaction such as NPS, CSAT or the Loyalty index which is an aggregation of NPS, price sensitivity and likelihood to buy other services.
- Advocacy- This stage is closely related to loyalty and signals when a customer is so satisfied with their experience that they refer your business to their own network. This is hugely valuable to a business as not only its a very cheap acquisition channel but also it brings in high intent leads that are more likely to convert to new customers. In addition, there is evidence that customers who refer others become even more loyal in the process (consistency bias). A few metrics for this stage are; % of customers who have successfully referred another new customer or % of new customers who were from referrals. The benchmarks for these percentages depend on the type of business and whether referrals are incentivized.
- Rescue/ De-escalation- This is not necessarily a linear step like the rest of the stages but is exceedingly important to measure and plan for. Naturally, some of your customers will start to slip from their usual engagement level, if this is not identified and mitigated, there will be a very good chance that these customers may churn. The goal at this stage is to identify any deviations from normal customer behaviour as soon as possible and create a rescue strategy based on the cause of the deviation. For example, if some of the users had lower recent usage, it is important to identify what has changed and how you can re-engage those users as soon as possible before those licences are cancelled. It is also possible that a user is less engaged due to conditions out of their control (Involuntary Dormancy), in which case there may not be a lot you can do to restore their previous engagement level. Depending on the service, the metrics can be quite different however in most cases they might mirror the metrics chosen for the Growth stage.
- Reactivation- This is another non-linear stage that can occur at any point during a customer’s lifecycle where they have completely disengaged with your service. Customer churn is one of the most dangerous risks to a business and reactivations are almost always cheaper than acquiring new customers to replaced churning ones. Depending on the stage of the customer before churn, the goal may be to return them to their previous stage or even start over and re-onboard them to your service. It is important to note that similar to the Rescue step, time is of the essence in this stage and the longer you wait the harder it will be to reactivate lost customers. The % reactivated from all the customers who have churned is a simple way to measure your reactivation efforts.
In the next part, we can look at which tactics to use at each of these stages: Ultimate Guide to Customer Lifecycle Management: Tactics and best practices- Part 2:
For more on Lifecycle Metrics refer to this article.
