The Customer Lifecycle: 8 Rules To Help You Understand It

phases of the customer lifecycle

We’re told that the customer lifecycle is a black box of mystery, but these 8 rules explain 80% of the customer behavior you’ll observe.

At the end of the day, we’re all selling products to real people. People just like us. There are patterns in human behavior that govern how your customers are likely to act. If you craft strategies that draft off these patterns it will make your life much, much easier. 

If you want the TL;DR version of this post: the customer lifecycle is driven by each individual customer’s disposable income, personal tastes/preferences, and fickle attention spans.

These factors impact how the average customer is likely to behave at scale. The bigger your business is (or the bigger you want it to be) the more the average customer matters. Your biggest fans will be the exception that proves these rules, but you can’t scale a brand on biggest fans alone.

If you’re a single brand selling in a single category, there are few exceptions to these rules. If you’re a national big-box retailer like Walmart, the sheer number of categories, number of locations, and cultural ubiquity you possess will give you more wiggle room.

Brands sit on a spectrum that runs from a niche DTC handbag brand all the way to Walmart. Think of where you sit on that spectrum as you consider how these rules apply to your business.

Rule 1: The category and price point of the first purchase is the biggest predictor of lifecycle behavior. 

A customer is likely to stick to the product category and price point of their first purchase. What this means: if a customer’s first purchase from you is a pair of sandals that cost $75, they’re unlikely to come back and buy boots for $450.

There are two reasons why this happens. The first is that any new customer has less than a 50% chance of coming back at all. The second reason is that the first purchase signals what the customer is interested in, and what they feel is a reasonable price to pay for it.

Maybe she lives in a warm climate and doesn’t need boots. Maybe she would never spend more than $150 on a pair of shoes, and plans to buy her boots elsewhere (or wait until you put them on sale).

Think about what you feel is “reasonable to pay” for different items. Would you spend $20 on a cup of coffee? Would it be wise for your favorite coffee shop to add a $20 drink to the menu and expect their existing customers to buy in en masse? Your business works the same way.

Rule 2: Moving the customer lifecycle beyond the first purchase is really hard.

For every 100 new customers you acquire, between 25 and 35 will come back and purchase again. The primary reason is that the consumer products landscape is competitive and noisy. If you don’t absolutely knock their socks off, someone else will grab their fickle attention.

Another reason–in eCommerce we overemphasize topline sales. That emphasis means that instead of pre-screening customers for relevance, we try every hack in the book to win over “just one more customer”. That’s fine, but you can’t expect these customers to return at the same rates as someone in your core audience.

Compare these two customer journeys and then be honest with yourself. Who is more likely to come back and buy again?

1. Jane first reads about your brand when the founder is interviewed on her favorite, most trusted podcast. She searches out the brand’s Instagram account and browses the website. She sees a few things she likes, but can’t prioritize the purchase right now. She is retargeted with some ads for a few weeks. 

A month later the brand releases new product. A few people Jane follows on Twitter post about it. The brand sends her an email newsletter with notes on why the brand decided to release the product, and why the ingredients are so special. She clicks through the email and buys it.

2. Mary is browsing Instagram as she drifts off to sleep. An ad from a brand suddenly wakes her up a bit–a cute product from a brand she’s never heard of at 50% off. She clicks through to the site. Seems legit. She checks out with her saved payment details and then passes out. It’s been a long week.

Rule 3: “Omnichannel” is a loyal customer strategy.

I learned recently that there are multiple definitions for omnichannel. What I’m referring to here is customers who shop at a brand’s own website as well as a brand’s own store(s).

A lot of technology vendors, consultants, and other “thought leaders” have pushed a narrative that retailers should focus on encouraging customers to cross channels because the omnichannel shopper is more valuable.

This is a flawed hypothesis for two reasons. The first is that the definition of omnichannel implies the person made at least two orders. If you’re comparing this audience to the average customer, who most likely made one order, of course they’ll look more valuable!

That’s a cheap trick that’s been called out before. Even if you do an apples to apples comparison that removes customers with a single order, omni shoppers still look more valuable. The reason is that most customers “go omni” around their 4th or 5th purchase. So omni puts a strong loyalty filter on the audience.

Omni customer lifecycle strategies are inherently loyalty strategies. As we’ve covered before, loyal customers are a small percentage of the average business with real but limited upside.

Rule 4: The customer lifecycle is governed by price entropy.

Customers tend to become more promo-hungry over time absent intervention. A customer’s first order is likely to be the closest to full price that they’ll ever get. Part of this is human nature, and part of this is how we, as operators, fail to respond to it. 

Think about yourself for a minute. I know that I have made a purchase from a new brand, loved the product, and then immediately thought about how I could get it for less money next time. This is why searches for “brand + promo code” are so popular.

As eCommerce operators and marketers we mostly respond to this by…blasting the same calendar of offers indiscriminately at everyone. Most brands run their offers on a six month or one year cycle where the same events occur repeatedly. This makes it easier to “comp”, but it also makes it VERY easy for your customers to game the system.

If you place a promo in front of a satisfied full price customer, they’re likely to take you up on the offer. And this will make them less likely to purchase again at full price.

Rule 5: You’re not going to “level up” customers at scale.

What do I mean by “leveling up”? If you spend enough time working in eCommerce, you’ll notice a recurring theme. Business owners are obsessed with acquiring customers during sale periods and converting them again during full price periods.

It’s easier and cheaper to acquire customers when you’re on sale–I’ll go into exactly why in a future post. Wouldn’t it be great if we could spend less on the hard job of customer acquisition, and then reap the benefits of a higher margin purchase down the line? 

Unfortunately it RARELY works that way. Remember rule number 1? A customer will rarely move out of their “comfort zone” regarding price. If a customer paid $50 for a widget today, why would they pay you $100 for a very similar widget tomorrow?

You’re not going to bolster your full price business by acquiring more customers during markdown periods. If your business operates on an “always on sale” outlet model, the dynamics of the law are a bit different, but outside the scope of this post.

Rule 6: Your clearance shoppers will never buy from you outside of clearance periods.

I’m defining clearance as “Up to 70% Off!” or more. One tactic that has become really widespread over the past year is the “online sample sale” or “secret sale”. Brands put their clearance section behind an email-gate and then flog it with paid advertising.

This is viewed as a customer acquisition tactic that will have a “halo effect” on the entire business. Unfortunately things will not work out that way. Clearance shoppers are a special segment of your customer file, driven more by “the thrill of the deal” than by any relationship to your brand. Their lifecycle is a distinct beast.

Do you think anyone who “discovers” a brand at TJ Maxx or Marshalls goes back to the brand’s flagship store to buy it at full price? Then why would customers at your own casino-style outlet shop behave any differently?

The worst part is that the faulty assumption driving these clearance sales often goes unexamined. And then brands wind up with an email file full of disengaged customers, a mess the email marketing lead is left to clean up.

Rule 7: Your eCommerce calendar time-boxes the customer lifecycle.

Customers will shop when their preferred price point and promo offer is available.

Most businesses launch products at full price, and then offer periodic discounts throughout the year. If the business has a seasonal or perishable component, merchandise doesn’t return to full price once it’s been marked down.

Customers acquired during one promotional moment are unlikely to purchase during a higher priced moment. If your selling season starts in February at full price, customers you acquired during sale in May probably won’t shop in February. And if you run your biggest sale during Black Friday/Cyber Monday, those customers probably won’t come back during the rest of the year.

This means that your sales go where your paid acquisition budget flows–customer acquisition strategy drives the customer lifecycle. The periods when you do the most acquisition will become the “tentpole” periods for your business. Selling outside of these moments will get harder and harder.

Rule 8: The customers who break these rules are rich.

A lot of people are going to hate these rules and insist they aren’t true. And that’s because these rules imply that the retail playbook we’ve been running for the past ten years needs a drastic overhaul. And that’s hard!

The objectors will point to their very best customers. These customers have 10+ purchases with the brand and shop any channel at any time. They’re the “VIPs”. And they represent <5% of the customers your brand has ever done business with.

“If some of our customers behave this way, then all of our customers have the potential to behave this way!”

That’s not true, because your VIP customers are probably rich. As in, they can afford to spend $5,000 per year on whatever you’re selling–slightly less than 10% of the US median household income before taxes. So unless you plan on dropping cash out of a helicopter, most of your customers will never behave like your best customers.

If you design your selling strategy to work with the customer lifecycle trends described here, you’ll find that you hit your goals more consistently and your digital marketing spend becomes more efficient. And that’s why you need Modern Lifecycle Marketing–retail is hard enough already.