Have you seen The Customer Experience Factbook?

In this 180+ page report, you'll find all the information and support you need to build a profitable, effective CX Improvement Program that spans every part of your business. You'll be able to implement and manage meaningful and profitable change, and grow your bottom line despite a slowing economy.

Get it on Amazon (Kindle/Print)

Share of Wallet

Share of wallet is a great concept - but, in practice, not a great tool...

The term "share of wallet" is usually heard when someone is painting a picture of the great upside sales potential that lies in a company's lower-spending customers. I have heard many a food retailer argue the case that his company is receiving only a fraction of the total expenditure of these low spenders and it would make economic sense to aim for a larger share. One major retailer, with NASA-like computing capabilities, even imputed each customer's total food spending, based on how much she spent (and what she spent it on) in its stores, augmenting it with inferred external data. It was then easy to calculate what share of each customer's estimated total food spending the retailer was earning. Targeted coupons were then sent to those customers with a low "share of wallet".

It's a great concept-but not a great tool.

Why?
Economics. Elasticity. Marketing.

Economics:
Each quarter, the typical US food retailer has 10,000-20,000 club card members shopping in its average store. Multiply that by the number of stores and we are talking of a very large number of unique customers. Is it realistic to accurately project the total weekly amount spent on food for each of these customers?

Considering all the assumptions and estimates needed to calculate each customer's total weekly food spending and the array of offers to match each profile, that's a huge initial cost. Then there's the cost of keeping customers' changing spending patterns and total spending data up-to-date. The cost doesn't even stop there. The ongoing processing, selection of myriad offers (remember we are individualizing each customer's spending habits), and markdown costs need be added. On top of all that, many customers will not even take advantage of your offer. For them, do you raise the offer value in the next round making the program even more expensive?

Elasticity:
The most common reason why we have a low share of a particular customer's wallet is because she is "in love" with one or more other retailers. To seriously gain her shopping affection (switching a lot of her wallet to you) is likely to cost a great deal in enticements (if it is even possible, for habits are hard and expensive to change.) As you would expect, the lower the share of wallet you have of a customer, the higher the cost to switch her behavior; in other words, wooing such desirable customers with enticements is often uneconomic.

So what can be done? Focus on Customer Elasticity instead. This simple concept measures the responsiveness of customers to targeted offers made to them. Customers who respond frequently to your offers are given a high customer elasticity rating; those that don't respond at all receive a zero elasticity rating. If you seek increased sales, target offers at customers with high, rather than low, customer elasticity scores (even though the low scores are often those with a low share of wallet). To increase the customer elasticity of those with low scores typically take large enticements making such offers uneconomic. The secret is to discover your company's patterns and pockets of customer elasticity through test marketing; then build your targeted sales program on this hard, not inferred, data.

Marketing:
The sales lure of low share of wallet customers, however, is not easy to shrug off. The potential appears so great, so compelling. So let's consider marketing as an alternative approach. Many retailers give their Chief Marketing Officer (CMO) the responsibility for both marketing and sales. Marketing is about understanding customers' wants and needs and satisfying them. Selling is getting the customer to buy what the company has bought. Both the share of wallet and customer elasticity approaches, above, fall under the selling umbrella. They are the thought processes of a salesman.

If a marketer, however, puts on his (or her) marketing cap to consider the question how best to increase a customer's share of wallet, he is likely to ask: Why don't these customers like us; why do they prefer other retailers over us? He will probe to see if the company's loyalty basics are sound and whether any need repairing. He will ask: compared with our competitors, how good are our prices, our assortment, our quality, our service, and our shopping experience? He will question both high and low share of wallet customers to learn their thoughts on how their spending with us might be built. This share of wallet challenge reminds me of the old Kansas Dog Food Factory story our Business School Marketing professor recounted each year. A CEO is extolling the virtues of his team and the company's products, stops, and pauses, and frustratingly asks: "Why, then, are our sales so disappointing?" A voice from the back of the hall shouts out: "Maybe the dogs don't like our dog food." So a good marketer will be searching to see if the company still has the right retail recipe or whether some changes to the recipe are required to attract customers to buy more.

Closing Thought
The image of capturing a larger share of customers' wallets, especially those whose share is currently small, is appealing. It likely will be the holy grail of marketing for which we will search for many years. Achieving 100% share of all of our customers' wallets, of course, will never come. But ways to increase the share, including those suggested here, will continue to be explored-and found.

About the author...

Brian Woolf is a global leader in loyalty marketing and has written three definitive works on the subject, Measured Marketing: A Tool to Shape Food Store Strategy, Customer Specific Marketing, and Loyalty Marketing: The Second Act. He devotes his time to helping retailers develop, critique and strengthen their loyalty programs.

The techniques and metrics Brian Woolf has developed have become guiding principles for those operating some of the world's most successful programs. He is the President of the Retail Strategy Center, and has consulted, and spoken at conferences, in the US, Europe, Japan, and Australasia.

Prior to his total commitment to loyalty marketing, his corporate roles included Deputy Managing Director of Progressive Enterprises, a major New Zealand retailer; and Chief Financial Officer of Food Lion, a leading US food retailer. He has an M.Com. (Economics) from the University of Auckland, New Zealand, and an MBA from the Harvard Business School.

Have you seen The Customer Experience Factbook?

In this 180+ page report, you'll find all the information and support you need to build a profitable, effective CX Improvement Program that spans every part of your business.

You'll be able to implement and manage meaningful and profitable change, and grow your bottom line despite a slowing economy. Grab this goldmine of easily adaptable and up-to-date strategies, walk-throughs, trends, technologies, research, suppliers and partners, plus all the supporting arguments you need to build a solid CX strategy.

While most marketers could list maybe a dozen key points for improving their brand's Customer Experience (CX), the researchers and writers at The Marketing Factbook have identified FORTY main 'CX Keys' which will help you drive your customers to new levels of delight, loyalty, advocacy and profitability.

The areas in which customers have direct contact with your organization are perhaps the most obvious places in which CX improvements can be made, and this report addresses all 24 of these 'Direct CX Keys', applicable to offline and online businesses alike.

At the same time there are many other areas that indirectly affect CX (such as the supply chain, policies and processes) in which every business can make simple but far-reaching improvements. This report guides you through the problems and solutions for all 16 of these 'Indirect CX Keys', many of which are often forgotten or under-played even in the best CX strategies.

Get it on Amazon (Kindle/Print)