Share of Wallet — the Upside to Customer-centricity
Posted by marketingfrontier on November 17, 2006
As companies seek to identify customers that should be prioritized for data-driven marketing, one criteria that is often not considered is “Share of Wallet.” Share of Wallet can be a difficult calculation to make precisely, but using an approximation of the upside potential at the individual customer level can dramatically change your marketing strategy and target.
What is “Share of Wallet”? Simply put, Share of Wallet is the measurement of the amount of spending a customer will do in your category and the share that he/she actually spends with your company. This measurement is as true for B2C companies, measuring consumer purchases, as for B2B manufacturers, who are measuring their revenue on a customer basis vs. what money is spent by that customer with competitors. Across both types of industries, Share of Wallet is a critical metric to determine potential upside. And potential upside is one measure of where you should spend your marketing $$.
So why don’t more companies make Share of Wallet a key metric for success? Because Share of Wallet is difficult to measure on an individual customer basis. Customers do not like to tell you what they are spending with competitors, let alone why. The only way to exactly measure Share is to audit customer books (or checking account), and that is not an option. A survey is another alternative, but only a selected group will respond, and you will want to market to everybody.
With the absence of an exact measurement, companies often fall back on basic segmentation for their targeting. While that approach is not wrong, there is another approach that is a bit more “righter.”
Conduct some research with Best Customers, and determine what Share you have with that group. Let’s assume for the moment that you are most likely to have the highest share among customers who spend the most with you. Not completely right, but probably not wrong.
Use that share and calculate opportunity spending by customer across the base. This approach will clearly understate the opportunity, since you will have customers who spend a much lower Share with you, especially in lower segments.
However, here is what you will find — your Best Customers tend to be the Best Customers of your competitor as well. The largest share of “available wallet” will fall in this segment. You can definitely do more prioritizing with lower-spending segments, but the point here is that you can do this analysis in the very short term, and develop a viable action plan QUICKLY. Quick, reasonably accurate plans yield incremental revenue in the short term and that leads to all good things… 🙂
Share of Wallet is one key, but only if you accept that it fits the lock loosely, but will still turn.