Strategies for Increasing Your Customer’s Wallet Share
In this article, we will explore the wallet share of customers and strategies for increasing its wallet share. In this article, we shall further try to understand 1) what is wallet share, 2) what is wallet allocation rule and continue 3) assessing customer’s wallet share, 4) strategies for increasing customer’s wallet share. So let’s get started.
WHAT IS WALLET SHARE?
Wallet share or Share-of-wallet (SOW) is a marketing method or survey tactic that is used in performance management and is helpful in letting marketers and managers understand the amount of business from a certain customer or customers. It can also be understood as the percentage or share of the wallet or expenses of a customer for a certain product that goes in the direction of a business company or seller. Every firm in the same industry or different industries does its best to get the maximum wallet share of customers by following several marketing and sales tactics.
The concept of wallet share is mostly used in the banking and finance industries and increasing the SOW influence positively increasing the lifetime value of a customer. As an effective example, wallet share can be understood as the number of times a particular gas retailer’s customer gets his car’s tank filled up in a particular period of time at the retailer’s pump divided by the total number of refuels in that period.
In many cases, increasing wallet share is considered simpler than increasing market share. Some common strategies that are aimed at increasing the wallet share of a customer include increasing amount the customer spends each time, encouraging him/her to visit the store or website more often and trying to get customer retention and loyalty, etc. The process of wallet share is very beneficial for businesses as it helps them improve their performance and thereby leads to accumulation of more profit.
Importance of Wallet Share
- These days, most companies are sitting on goldmines of data which is still not analyzed or assessed. Customers, if studied properly can provide huge chunks of information to companies about their place in the industry. By studying this information for several customers, companies can work towards improving their products and services. The concept of wallet share thus helps businesses work on their weaknesses to retain customers.
- According to a study, it is about 6 to 7 times less expensive to retain existing customers as compared to acquiring new ones. The concept of wallet share helps businesses focus on retaining those customers who show promising stats. Thus, it helps them save on spending on acquiring new ones.
- Also, a 5% increase in retaining customers can eventually result in 25-100% increase in profits. This means that if companies focus more on increasing their customer’s wallet share, they can eventually retain more customers and thus earn more profit.
Challenges in Measuring Customer’s Wallet Share
- Lack of information about customer’s spendings: The first challenge that businesses face when measuring customer’s wallet share is the lack of information about their spendings. The data present with most companies is only vague and rough, and this does not lead to an exact calculation of wallet share. It is based on an assumption that does not provide accurate results.
- Hidden factors: Calculating wallet share depends on a number of factors, most of which are hidden. Some examples of such factors include the customers’ brand preference; his/her total budget, customer’s perceptions, substitution within categories and competitive concentration. Due to this reason, companies cannot evaluate the percentage of customer’s SOW. The important factors that shape the customer’s wallet share are mostly absent and hence making the measurement is tough.
- Time dependence: Wallet share is a tactic or metric that is mostly dependent upon time. This means that the observations made on the customers’ spending patterns are within a short window of time. Outside this window, the customer may change patterns, change preferences, etc. and this thus leads to a wrong calculation altogether. By lengthening the time window, better observations can be made but doing this in itself is very challenging and demanding for businesses.
By refining measurement and overcoming these challenges, even a slight bit can greatly improve the calculations and produce a more accurate result. The time estimation too must be done right.
WHAT IS WALLET ALLOCATION RULE?
Wallet Allocation Rule is a term used to refer to the rank the consumers or customers assign to a brand in comparison to other brands and its link to the wallet share of the customer. This rule is a formula that helps to calculate wallet share based on the rank the customers give to a company in comparison to others. This is a very useful concept and formula since from industry to industry and from company to company; the relation between wallet share and a company’s wallet allocation rule is very consistent. What is special about wallet allocation rule is the fact that it considers two major things-whether a company is the consumer’s first or second choice and the number of companies or brands the consumer uses. These are the two things on the basis of which the exact share of wallet figure can be calculated.
Here’s the formula that we call the Wallet Allocation Rule:
Three Truths of Wallet Allocation Rule
- One of the most significant truths about wallet allocation rule is that it is better to be the number one brand and is more rewarding than being the number two brand. What happens is that by being the number one brand in a customer’s mind, a company can easily calculate and apply the wallet allocation rule.
- Another truth that is related to this rule is that the more the number of competitors used in a particular category, the lower will be the scope or opportunity for each and everyone. The money or profit in this rule doesn’t only go to the toppers, but everyone gets some share of the wallet of a customer. This means that for a particular brand, the more the number of brands, the less will be their share from the customer’s profit.
- In the world of business, one concept that everyone must understand is that no two people in the same field can get gold medals. Parity hurts and tying up with another brand would not be as beneficial as being on your own. This is because when you club up with another brand, you are the average of the two places that you would have been if you weren’t clubbed. For example, if in case your brand comes at the first place tied up with another brand, then you come at 1.5 and not 1. This significantly reduces the brand payout and also divides the earnings.
ASSESSING CUSTOMER’S WALLET SHARE
The following are some of the steps you can follow to assess and estimate your customer’s wallet share:
Step #1 – Define Profile Groups
The first step to follow to estimate your customer’s wallet share is to define profile groups. This can be done by two ways-by using data obtained from analyzing a group of consumers and data obtained from profiles of customers. Many profile groups and divisions can be created by reading demographic data, as well as data of loyalty program members. By creating these groups, the customer’s wallet share can be found out. Some of the characteristics on the basis of which profile groups of a particular kind can be created are age, nationality, marital status, and gender and product preference. Once a profile group has been created, the consumers can be put into the ones that match the most.
Step #2 – Understand Profile Groups
The next step is to analyze and understand the profile groups as they have already been created. Now the main aim is to find out or determine what people in particular profile groups purchase and the amount they are willing to spend on these purchases.
The main aim of this kind of an analysis is that it helps to know the amount that a person in the profile group should be spending if he/she gave his/her full wallet share to that brand. The analysis of this nature shows that there can be distinctions in the spending patterns of people within the same profile group. The revenues generated by these people can greatly vary.
Step #3 – Assess Individual Past Spending
Now, after the previous analysis, an estimate regarding each customer’s wallet share can be made. By studying the past purchasing behavior of each consumer, a second and more validating analysis can easily be conducted. Customers’ past spendings and purchasing are calculated and compared to their current, and this gives a better idea of their share of wallet. Now that two different versions of a particular customer’s share of the wallet have been found out, the one with the higher potential can be used and assigned to him/her.
Step #4 – Act
Now that a share of wallet figure has been assigned to each of the customers, it is time to persuade and convince the customers to consolidate their spendings. It becomes important to win over customers now and to do so; one more additional analysis can be done. This analysis helps to identify what is missing and incorporate it in the process further. To do this analysis, a company must assess a customer and find out what he/she is not buying in comparison to the average person in a profile group. By doing so, a change must be introduced to attract customers to the products they are not buying. This can be done by giving customer coupons or customers vouchers through the mail or at the checkout procedure. By giving customized coupons, the exact preferable item of the customer can be determined.
STRATEGIES FOR INCREASING CUSTOMER’S WALLET SHARE
As mentioned above, knowing and increasing the wallet share of a customer is very important for every business, no matter how challenging it is. By knowing the wallet share, a company not just fathoms its position in the market but also makes efforts to improve it. Just improving customer’s loyalty is in fact not enough, improving retention, purchasing and amount of purchase are also very crucial. In spite of knowing the importance of this concept, many businesses still do not follow a well-developed plan to increase the wallet share of the customers. This could be either due to lack of knowledge of how to increase it or just due to casual outlook. The following are some of the strategies and best practices to increase the wallet share of customers.
1. Know your customers
The first way to increase the customer’s wallet share is to know them and understand their spending or purchasing behavior. From the methods of analysis given above, one can determine which customer spends on what and how much do they spend. The steps of analysis will also be able to point out towards the products customers do not buy. Thus an estimate or note of which customers are profitable and which are not can be made. Just knowing what customers need or want is not enough, you must be able to promise them to deliver the same as well. Also, by knowing the products that customers don’t need or are just not buying, you may be able to improve upon them and deliver them in an improved way.
The method of wallet share cannot be independent of customers or consumers. It has to take into account each and every customer and his/her information. For this, thorough analysis and observation need to be done. This may take time, special expertise and dedication but in the end, the results will be worth it.
2. Track and increase customer satisfaction
The next strategy to follow in order to increase the customer’s wallet share is to track and improve upon their satisfaction levels. If you do not know how satisfied your customers are with your products and services, how will you ever be able to improve upon yourself? Thus, it is first important to track their satisfaction level and then find ways to increase it.
To track the customer satisfaction level, you can conduct satisfaction surveys or other types of surveys. These surveys are mostly in the form of written questionnaires which can be distributed physically or through email. Once you obtain results of the surveys, analyze them to find the weak and strong areas of your products and services. This will help you know how satisfied and content your customers are.
Now, work on the weak areas to raise the level of satisfaction of the customers. For example, if your customers are not satisfied with your after sales delivery, make efforts to improve upon it and so on. Also, maintain the areas that customers are most satisfied with and avoid being complacent.
3. Engage your customers
Maintaining a decent level of communication with your customers and keeping them engaged in your activities is also a good way to increase the wallet share, indirectly. The more the customers are involved with a brand, the more will they be inclined to buy from it as compared to others. There are many ways to engage the customers and keep them interested and curious as to what you are going to offer to them. The following are some ways you can follow to do so:
- Interact with customers on social media platforms like Facebook, Twitter, and Google+, etc. and keep them updated about existing and upcoming products and services. Give them a chance to comment on what is offered by you and take into account their suggestions.
- Provide them with information and learning opportunities through graphic and interactive means such as images, visuals, and presentations. Create a website that is informative and caters to a large range of demographics.
- Create and increase the number of customer touch points. Make each of the touch points a positive experience for the customers so that they are encouraged to come back and buy from you over and over again. The more the number of positive touch points, the more will the brand awareness increase, and this has a direct relation to the wallet share.
4. Improve your rank
It is very important to improve your rank in the mind of the customer in order to improve revenue earned and increase the wallet share of the customers in your favor. As we have found out earlier, being on the 1st rank is a lot better than being on the 2nd rank. Thus, even the slight difference in ranks can play a significant role in the wallet allocation rule and thereby the wallet share since both are correlated. Yes, it takes the time to climb into the first position but besides time, it takes efforts as well. Again, to improve your rank, you can follow several strategies and method such as:
- Raise brand awareness and brand image;
- Offer better quality yet reasonably priced products;
- Improve interaction and communication with customers;
- Offer better side-services like customer support, delivery and after sales, etc.;
- Focus on online marketing and physical marketing.