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5 Steps of the Customer Loyalty Hierarchy

In a recent discussion on LinkedIn, Shaun Mooney said he thought the first step in Customer Loyalty is the product.

I think that the more appropriate statement is that the first step in the “transaction” is the product, and the first step to loyalty is the emotional connection created through the customer experience.  Customers have a hierarchy of needs that extends from the core offer (ie. the basic product, or simplest service) to the emotional connection.  The Model T was the core offer way back when, only available in black.  Southwest Airlines understood this very well when Herb Kelleher said that their fundamental offer was basic, no-frills transportation from one place to another. Without this stable core product or service, there can be no transaction.  Without competition, this level is perfectly acceptable.  As competition for similar core offers begins to arise, companies must go up-stream to differentiate themselves.

At the next level are some of the basic differentiators such as different colors, options, or configurations that make the product uniquely valuable.  They help differentiate the core offer from competitors.  Again, with minimal competition, this level is satisfactory, but hardly loyalty-inducing.

Beyond this level are service differentiators that may make it easier for the customer to buy or consume the product.  At this level some level of “brand preference” may be solidified that protects immediate defection to a competitor that offers a similar core offer.

Next is the personalization level, where the products and services are tailored to increasingly narrow market segments.  Through personalization, the products and services become more deeply entrenched into the customers usage patterns and more useful because they meet more important needs.  The customer experience begins to come into play at this level.

Finally, and where true loyalty begins to be earned, is at the top of the pinnacle where individual needs are met and an emotional connection is made.  At this level, companies and customers are working more in partnership with each other, the customers clearly articulating needs, wants, and desires and the company leveraging the might of the supply chain to profitably meet these, often on an individual basis.

Bottom line, you need to understand where your customers are on this progression by gathering and leveraging in-depth customer insight and then adapt your customer strategy to serve each customer segment profitably–and the way they want to be served.  Anything more and you waste resources, anything less you lose customers!