The Customer Lifecycle

How do you monitor your customer throughout the lifecycle? Each customer enters the buying process at a different stage. This is most apparent with technology products and is not necessarily transferable to a commodity.

However, the Internet is, in essence, a technology product from an adoption perspective. Understanding how the customer interacts with your site or your products and when will help you target the correct intervention point. Pinpointing your communications to lifecycle stages will avoid a shotgun effect and will solidify your relationship with your customer as an evolutionary process.

Identifying Your Most Valuable Customers

You can identify your top customers by analyzing historical sales for dollar volume and frequency of repeat purchases. The data must be carefully analyzed because repeat customers can be more valuable over time than one-time, large ticket item purchasers. This analysis must then be matched up with the demographics and other attributes and characteristics you've previously identified in your customer segmentation. Integrating all of these elements gives you a good picture of your key customers. You will also need to include customers you want to have in your cultivation plan.

The opportunity equals the combination of customer retention and the value of all future profit plus those customers you deem to be potentially valuable over the lifecycle—minus the investment required to keep and to acquire them. It also includes future profit made by referrals. Prospective customers who visit your website prior to purchase are much more likely to become buyers than to become non-visitors.

Investments in personalization, promotions, and communications depend on the ranked value of your customers.

It's equally important to establish the identity of the consumers that do not measure up. Spending time and money on this group drains the company of the ability to cultivate new and more attractive customers.

Direct mail companies use a similar technique to determine their mailing investment to each customer segment. After dividing the customer base into ten equal groups, they then rank based on profit potential. These companies must ensure the cost of catalogs is worth the ultimate customer value.

After customer segments are defined, the data are incorporated into future forecasts to make product selection, pricing, inventory management, and promotion decisions.

Business-to-Business Relationships

Up to this point, we have used the terms "customer" and "consumer" interchangeably. Consumer package goods companies normally focus on the consumer as the end user and reserve "customer" for other businesses, resellers, and distributors. Manufacturers and retailers with business-to-business relationships know that these customer relationships can be among the most profitable.

A one-to-one system with a company must still focus on an individual. Each functional area will approach the relationship uniquely. Depending on whether you're dealing with a professional purchaser, a technical specifier, or an administrative assistant, the customer's needs will vary. Simplifying routine purchases by offering custom lists or access to prior purchase invoices is critical for those tasked with frequent purchasing responsibilities. Ordering expensive or technical products may require justification and additional information.

Environmental information should be easily accessible along with health and safety materials data. Customized web pages address individual company requirements and purchaser needs. Automated ordering and delivery systems can be linked to other systems for integrated purchasing, billing, and supply-chain management.

Many mid-sized companies worldwide will use or plan to use the Internet to purchase supplies and equipment in the near future. While personal calls by sales reps could be construed as true one-on-one marketing, busy business managers perceive time as money. They don't want a sales pitch: they want to order and receive services their way. Convenience, speed, and cost are the main drivers.

Usage Behavior

We've examined shopping behavior, lifestyle, demographics, and other factors that influence customer purchasing and loyalty. How products are used, at home or in business, may also have an impact on web-based shopping. For instance, if a web designer knows that a customer routinely purchases a spare product in addition to a regular order, he may bundle two products together or offer an online reminder. If segment data confirm that most customers purchase two products together, a promotion may be offered to customers still purchasing the single item.

Historical purchasing data will be useful to monitor usage behavior. The best way to thoroughly understand customers and how they use the products they purchase is to visit representatives of your top segments in their homes or offices. Following them for a day or two will give you invaluable insight that you cannot achieve in a sterile test environment.

The analysis of customer behavior over time must be measured to get an accurate picture of usage. This is best managed with a permanent program rather than a one-time research project.

Predicting the Success of the Customer Relationship

Relationships between customers and merchants are very much like other typical relationships between people. Understanding what makes a relationship successful with your employees, spouse, children, or co-workers helps you determine how to measure a good relationship with a customer.

Relationship studies conducted by the University of Denver indicate that marital failure is predictable to a surprising degree. This means that, for many couples, the seeds of divorce are present prior to marriage. The study was grounded in understanding how to prevent marital failure and determining how prediction can lead to better interventions designed to help couples reduce the risk of divorce.

Dr. Howard Markman, Department of Psychology at the University of Denver has identified the steps in a relationship and potential danger signs and patterns in his book, Fighting for Your Marriage: Positive Steps for Preventing Divorce and Preserving a Lasting Love (JosseyBass, 2001).

Once a relationship is established by two partners, problems can develop. Escalation occurs, which can be resolved, ignored or neglected. Continued neglect implies invalidation, and contempt usually follows. Negative interpretations, withdrawal and avoidance lead to indifference. These are danger signs and patterns of a relationship headed for failure.

The same patterns and principles can be applied to the customer relationship. By reducing risk factors and increasing protective elements, you can preserve a fragile relationship. How the customer "feels" at every point of contact with an online store influences the relationship. Points of contact can be shopping on the website, asking a question of the customer service department, returning a product, or tracking an order. At each of these touch points, a customer must feel important, appreciated and respected.

The large group of people called "customers" must now be narrowed down to specific individuals. When you think of these individuals less as "targets" and more as "partners," you begin to get the idea of how powerful a relationship can be. The customer is not someone we do something "to"—the customer is someone we do something "for." It's a symbiotic relationship in which we have to give something of value.

Shrinking the World

If e-commerce mirrored the actual composition of the world, it would be very diverse. Marianne Williamson, noted author and speaker on world issues, presents a new way to look at the people of the world:

"If we could at this time shrink the Earth's population to a village of precisely 100 people, with all the human ratios remaining the same, it would look like this:

1. There would be 57 Asians, 21 Europeans, 14 from the Western Hemisphere (North and South), and 8 Africans.
2. Seventy would be nonwhite; 30 white.
3. Fifty percent of the entire world's wealth would be in the hands of only six people. All six would be citizens of the United States.
4. Seventy would be unable to read.
5. Fifty would suffer from malnutrition.
6. Eighty would live in substandard housing.
7. Only one would have a college education.

As web shopping gains adoption throughout the world, human factors engineering becomes even more critical. The Internet used to be a domain of technology aficionados and game-playing teens. Truly understanding the customer and designing for the future demands that you stay abreast of the changes in the population at large as well as feel the pulse of the shopping environment.

Major changes are usually addressed at the strategic level of a business. Yet, as soon as a belief about the customer is ingrained in a corporation's culture, it tends to be perpetuated. That's why many major corporations still believe that Internet use in the U.S. is dominated by men.

Subtle changes are even more difficult to acknowledge or track. Continual customer contact, whether through individual or group research, is the primary guard against complacency. Monitoring secondary research and staying in touch with customer advocacy groups will give dimension to growing customer needs.

Often, one channel will spot change faster than another. Even if your company uses only one channel—a pure-play web merchant, for example—it's still critical to understand how the customer shops in a variety of modes, what they prefer in each, and how a best practice can be replicated in another domain. Each channel can learn from the other because they take different approaches toward helping the customer have the best possible shopping experience.

Online stores Product Placements

Online stores lack the observable physical start and finish structure of a retail store. At retail, a customer can clearly see aisles and shelves filled with products and the checkout counters waiting to total their purchases. Online, there is a virtual space that is unseen and unclear as the customer "steps" through the store entrance and onto the home page. Once there, the shopper knows there are lots of products, yet he can't see how many. He also can't see the structure of the aisles or how products might appear on the shelf. And he can't tell the size or the depth of the store. This can be disorienting because the customer doesn't know if the store is a big operation or a small one—the tip of an iceberg or only an ice cube.

As the shopper starts clicking choices and wanders through the e-aisles, he can be confronted with virtual pallets full of random products (long line listings). Or he can be presented with structured, organized shelves filled logically with an assortment of products that are easy to select.

Some products are better suited for online sales than others. Multi-channel shoppers will choose to purchase products based on convenience and proximity to their businesses or homes. And this depends on the product itself. Many people shop online, regardless of where they actually purchase. They may research information for a higher priced or larger item online, but they make the purchase in person at retail. More routine, commodity, and low involvement products make ideal online purchases.

A strategic retail shelf-management technique determines product shelf placement. Typically, placement is determined by the number of turns—volume of product sold during a month—and value of the specific product. Unfortunately, key areas on web pages are sold for advertising space instead of reserving them for prime products. Also, dynamically generated product listings are often sorted by the database rules—such as alphabetically by product name or numerically by product number—and not by product value to the merchant.

Above the Pack and Above the Fold

Online products most frequently purchased or products that have other strategic value should be placed "above the fold." This is the viewable part of the web page as it renders in a conventional 600 x 800 resolution screen. It is analogous to placing the product on the retail shelf at eye‑level. This placement makes it most convenient for people to find. Customers stop searching if they have to scroll too much or click to other pages, which is similar to putting products on the top or bottom shelf.

Considerations must be given to emerging technologies and adoption of Internet devices I such as handheld PCs and net or web TV so that prime products are displayed first.

Limiting Choice with Conscious Intent

Even with the ability to offer a limitless product mix, there is a point where the law of diminishing returns comes into play. Unlike a retail store and catalog that have physical limitations, the online store has depth, limited only by the system storage space and servers running the we bsite. The more products in the database, the harder it is to organize and merchandise them.

Limiting choice is a strategy employed to manage the structure to ease product selection and minimize warehousing and fulfillment transactional costs. Too much choice can actually be an inhibitor to purchasing and a reason for abandoned shopping carts. This occurs when the product comparison and selection tasks become too overwhelming. Even with the mistaken perception that online shelf space is limitless, customer considerations and business drivers must be taken into consideration.

Online shoppers look to their online merchants as experts in the products they sell. Many online resellers feel that providing customer choice equates with providing them every product that is available. This view forces shoppers to compare and make choices from long lists of possibilities with limited information. Shoppers often don't bother and shop somewhere else instead.

What better service to your customers can you provide than making recommendations to them? To start, this can be simply identifying products as "good, better, and best" for the shopper's need. These recommendations can be based on price and quality of the brand. These designated products can be placed above the fold for those shoppers who don't know where to begin to comparison-shop. Then, additional choices can be listed or featured for those customers who would like more choices and have more time to browse.

Product and category long-term value factors must be considered in developing the good, better, best model, however. Customers will develop trust for your store if their experience with the product matches your recommendations. They will continue to see you as the expert in the products you sell.

Increasing Cash Register Ring

Many techniques can influence the number of items purchased or the total value of the she cart. Three of these successful retailing techniques to leverage online are cross-selling, up ing, and purchasing spares. In fact, there is more opportunity online through virtual mess to attach these to products than in traditional retail or catalog phone orders.

Cross-selling products are a method by which the online store recommends complex items for customer purchase. This technique drives incremental sales and is typically innate. These "add-on" products can also provide a fuller solution for the customer. Some impel recommendations could be jewelry and shoes with dresses, cables with printers, batter- with electronic devices, or salsa with chips.

Relevant and complementary items work best for cross-selling. These items might belong to the same category or they might belong to a completely different category. Conduct a holistic evaluation on your website to put together recommendations for key products. Make it convenient and easy for the customer to add the item to the cart. Complementary products are good items to consider as bundles and "e-kits," a tool.

Up-selling is a method by which a product within the same category with varying degrees functionality is recommended that may better meet a customer's longlterm needs. This method replaces a less-expensive product purchase with a more-expensive product purchase, while cross-selling adds additional products to the cart.

Another cross-selling technique is to recommend that the customer buy "spare" products.

It is technique is best for consumable, repeat purchases. It's never convenient to have to go to retail store when you run out of a product. This can be an incentive to increase the number of products in the shopping cart, especially if your online store offers free shipping or other delivery options for a designated sale amount. This technique also keeps customers coming back as repeat purchasers making more frequent visits to your store. Many customers return to the original store for repeat purchases if their experience was positive.

Using valuable cross-sell merchandising space for non-relevant products doesn't work. Many online stores currently make the mistake of "down-selling," which happens when stores believe they are offering customers "choice." This practice can recommend a lower-quality product at a lower price, which may not be in the best interests of the customer. The store's perceived value of choice may conflict with the customer's perceived value of the recommendation. As one customer put it, "It's like going to a premium store, and being offered flea-market items."

Down-selling often occurs when webpage space is sold as manufacturer advertising or the product manufacturer offers "spiffs" (sales representative incentives) attached for the merchant. While seemingly harmless, this practice may cause you to lose credibility with customers due to the recommendations you make. As an online merchant, customers see you as an expert. If this is compromised by non-relevancy, customers may lose faith and trust in your judgment.

Customers look to online stores to recommend the right products, not to merely list products for sale. Used effectively, these techniques increase the total cash register ring and provide customers with complete and best solutions.

Increasing Frequency of Purchases

Increasing the frequency of purchases is an online technique that considers customers' purchasing behaviors. It is somewhat related to cross-selling when follow-up products are offered to customers at a designated time after an initial purchase is made. This is essentially a "postponed" cross-sell. For this technique, it is imperative to understand your specific target customers and have a thorough understanding of product-related categories and other categories as defined by retail customer segment clustering techniques.

Online sales data is analyzed for trends. For example, a trend might identify that customers who purchase a new desktop PC also purchase a new printer two months later. The store can provide printer information to the PC customer as a follow-up a month later.

Tracking customer purchases and integrating the information into your CRM database will allow you to customize messages to your customers when they enter your website. You can greet them personally and acknowledge past purchases. If the customer buys routine supplies from you at regular intervals, give the customer the option of placing a standard order. Even small companies take advantage of this technique. One pizza chain keeps records of each take-out pizza ordered linked to the customer's phone number. When the customer calls in an order, he asked if he would like the same as his last order. The same concept applies online. But it must be non-intrusive and with the customer's permission.

Taking this a step further, the company can recommend, based on ordering history, what it thinks a particular customer might like to purchase in the future. This technique must be very customized to be on target and should be linked to a personal shopping service. Otherwise, it may be perceived as an annoyance.