Many traditional ways of measuring customer loyalty have focused on customer satisfaction (CSAT). Ad hoc surveys, for instance, ask customers questions such as, “How satisfied are you with your experience?” Similarly, the Net Promoter Score (NPS) measures how likely customers are to recommend a product or company to their friends and colleagues.
In a world of abundant choices, however, CSAT metrics may not be a sufficient measurement of true loyalty. Consider how customers buy coffee, for instance. While they may be happy doing business with a local café, that doesn’t mean they won’t visit another coffee shop. In many cases, satisfaction doesn’t equal loyalty.
In 2011, four researchers—Tim Keiningham and Luke Williams of Ipsos Loyalty, and Lerzan Aksoy and Alexander Buoye of the Fordham University—proposed another way of measuring customer loyalty: Share of Wallet. Unlike CSAT and NPS, Share of Wallet doesn’t consider how satisfied customers are with each transaction. Instead, it attempts to get closer to actual customer behavior by considering the wider marketplace.
If your company is considering using Share of Wallet as a customer experience or loyalty metric, you need to understand its pros and cons. This blog post provides a deep dive into this measurement system. It explores the strengths and weaknesses of Share of Wallet, offering ways to maximize its value to your business.
What is Share of Wallet?
Share of Wallet measures the amount of customer spending your brand receives relative to the entire pot of customer spending in a particular category. It calculates how much money your customers spend with you compared to what they spend with your competitors.
Technically speaking, Share of Wallet is “the percentage of your customers’ spending in the category that is allocated to your brand.” It is calculated using a formula called the Wallet Allocation Rule:
Keiningham and his team developed the Wallet Allocation Rule after observing that “the rank that consumers assign to a brand relative to the other brands they use predicts Share of Wallet.” When it comes to predicting actual customer spend, your rank compared to competitors matters more than satisfaction, according to the researchers.
Is Share of Wallet better than NPS and CSAT?
The researchers who proposed the Wallet Allocation Rule found that the relationship between satisfaction and actual customer spending behavior correlated very weakly: just one percent.
The weak correlation between satisfaction metrics and actual customer spend helps explain why allocating more resources to improve customer perception of experience doesn’t always result in an increase in market share.
In an interview with The Globe and Mail, Keiningham shares an example of why NPS isn’t a good measure of loyalty. One report found that 90 percent of the time, customers who are “promoters” of a brand are also advocates for another. This example demonstrates how over-reliance on NPS could lead you to overestimate the true strength of your connections with customers.
In The Enterprise Guide to Customer Experience, Tyler Douglas, chief sales and marketing officer at Vision Critical, points out that Share of Wallet helps address some of the issues with CSAT surveys by putting your brand in a wider business context. Because it considers the marketplace, Share of Wallet can expose problems with your company’s performance that may not be evident from CSAT scores alone. For instance, if everyone in your category is getting high CSAT marks, Share of Wallet can more accurately measure how well your brand is winning customer loyalty. “This metric can reveal hidden opportunities and expose the false illusion of success,” explains Douglas.
The disadvantages of Share of Wallet (and how to fix them)
Share of Wallet could provide an early warning that your brand is falling behind competitors in your category. By itself, however, Share of Wallet doesn’t tell you how to fix pain points in the customer experience, and what customers would like to see in the future.
“Share of Wallet is a powerful tool for signaling when and where things are going wrong, and even for pointing to unseen growth opportunities,” explains Douglas, “but it can’t tell you why things are going wrong, or how best to capitalize on those opportunities.”
"It can’t tell you why things are going wrong, or how best to capitalize on those opportunities.”
If you look at the big picture, Share of Wallet also fails in one crucial test: it doesn’t foster an emotional bond with customers. Ultimately, Share of Wallet still reduces customers to numbers. It fails to encourage meaningful conversations between a brand and its customers.
To get more out of Share of Wallet, you need to dig deeper. Customers are more likely to be loyal in the long term if they feel a shared purpose with your company. Treating customers as mere data points won’t foster that shared purpose.
The solution? Start with Share of Wallet, but don’t stop there. Instead, engage with your customers in a two-way dialogue. Use customer intelligence to understand why customers rank certain companies higher (or lower) than yours. Ask for customer feedback on how you can improve your ranking, and use that feedback to inform your decisions. You’ll get more out of Share of Wallet if you use it as a catalyst for more customer engagement. Aim to get a more holistic picture by talking directly to your customers and building a stronger relationship with them.
Give more context to Share of Wallet
In the end, Share of Wallet is just a scorecard. By itself, it’s not actionable. It’s helpful in determining how you’re doing compared to your competitors, but it doesn’t provide guidance on what you should do in the future. More importantly, it doesn’t get into the hearts of your customers.
Share of Wallet is a good starting point. But it is just that—a starting point. Lasting loyalty is a product of really understanding your customers, connecting with them on an emotional level and exceeding their expectations time and time again.