January 11, 2021

Customer Development

I mentioned last week that new customers are going to be a focus of my work in 2021. But it goes well beyond that. New customers are the first stage in the development process, called "Acquisition", of course.. It's generally the most ignored stage in the development process across my client base. That's a mistake.

The second stage is the "Welcome" period. The first three months after a customer is acquired are critical to customer development. If you do not convert the customer to a second purchase immediately, you waste your new customer opportunity. This process is almost universally ignored across my client base. That's a mistake.

The third stage is "Emergence". If you get a customer over the hurdle to a second purchase (which is very hard to do), your focus shifts to Emergence. Obtaining a third or fourth purchase becomes much easier. This is the stage where you shift your focus from marketing channels to merchandise preference, trying to expose the customer to every opportunity your brand presents to the customer.

The fourth stage is "Loyalty". The customer has a 60% (or better) chance of buying again in the next twelve months. This typically happens after a 4th purchase, though your mileage will vary. You harvest all of the profit necessary to keep your business moving forward. These customers were likely acquired a few years ago, but they are generating the money necessary to pay your salary today. Do not over-market to these customers and waste all of the profit they generate.

The fifth stage is "Retirement". The customer extracted everything the customer needed from your brand, and you extracted all of the profit you needed from the customer. The customer is being retired. Your job is to now communicate with the customer, but there isn't a reason to beg this customer for business. The financial aspect of the relationship is over. Use free tools to communicate, and if the customer wishes to purchase again, so be it. For the most part, the customer relationship has ended.

There are five stages to Customer Development in my framework.

  1. Acquisition
  2. Welcome
  3. Emergence
  4. Loyalty
  5. Retirement

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