Customer Loyalty Isn’t Enough. Grow Your Share of Wallet

Customer Loyalty Isn’t Enough. Grow Your Share of Wallet

Companies spend a great deal of time and money trying to improve customer loyalty by measuring and managing metrics like:

·       Satisfaction

·       Net promoter scores

Traditional gauges of loyalty correlate poorly with what matters most:

·       Share of wallet- the percentage of a customer’s spending within a category that’s captured by a given brand, or store or firm

Making changes to increase satisfaction won’t necessarily help

The rank that consumers assign to a brand relative to the other brands they use predicts share of wallet according to a simple, previously unknown formula, the Wallet Allocation Rule.

·       Correlation between a brand’s Wallet Allocation Rule Score and its share of wallet:

o   A perfect correlation is 1.0

o   Remarkably consistent 0.9

o   Robust 0.8

o   Very weak 0.1

The Rule in Practice

·       The new rule has important implications for strategy. To understand what drives changes in share of wallet, focus needs to be shifted from drives of satisfaction to drivers of rank.

o   First you can’t assess bran performance as if it exists in a vacuum

o   Second, the rule makes it possible to craft strategies that directly affect brand performance and then measure the impact on share of wallet

The Wallet Allocation Rule is clear on this point:

·       If you can’t prove your rank

·       You can’t prove your share of wallet

How to improve your rank:

·       Follow the wallet allocation rule to establish the share of wallet of each competitor your customers use

·       Determine how many customers use each competitor

·       Calculate the revenue that goes from your customers to each competitor

·       Identify the primary reasons your customers use your competitors

·       Prioritize your opportunities to improve your share of wallet