Share of wallet (SOW) is a
survey method used in
performance management
Business performance management (BPM) (also known as corporate performance management (CPM) enterprise performance management (EPM),) is a management approach which encompasses a set of processes and analytical tools to ensure that a business o ...
that helps managers understand the amount of business a company gets from specific customers.
Another common definition is the following: Share of wallet is the percentage ("share") of a customer's expenses ("of wallet") for a product that goes to the firm selling the product. Different firms fight over the share they have of a customer's wallet, all trying to get as much as possible. Typically, these different firms don't sell the same but rather ancillary or complementary product.
Application
Share of wallet is commonly used in
B2B context, and in the
finance
Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...
,
bank
A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
ing and
retail
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is the sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholes ...
sectors, to describe share-of-customer. Increasing share-of-customer is a key consideration increasing
customer lifetime value
In marketing, customer lifetime value (CLV or often CLTV), lifetime customer value (LCV), or life-time value (LTV) is a prognostication of the net profit
contributed to the whole future relationship with a customer. The prediction model can have ...
. The reason is that retaining and growing customers is cheaper than acquiring new customers.
Forte Consultancy says: "The percentage of a customer's spend that is with a given company over a given amount of time. For a gas retailer, for example, it's the number of times a given customer fills up their car's gas tank one month at their own pumps divided by the total number of times the same customer fills up their car's gas tank that entire month. So a customer who fills up his or her car's gas tank four times a month with three of those fills at one gas retailer is giving that gas retailer 75% share of their wallet."
Under a share-of-wallet contract in a B2B context, contract terms are "designed to induce and reward customer loyalty by offering discounts when a customer contracts and commits to buying more than a threshold share in
category from the supplier".
Research
Share of wallet and customer's loyalty and satisfaction are positively correlated. As a result, marketers in recent years have spent more resources on developing
loyalty program
A loyalty program or rewards program is a marketing strategy designed to encourage customers to continue to shop at or use the services of one or more businesses associated with the program.
Single-company vs. coalition programs
Loyalty progr ...
s. Some researchers have argued that customer's satisfaction is not a strong enough predictor for share of wallet, and that marketers should focus on how a specific
brand
A brand is a name, term, design, symbol or any other feature that distinguishes one seller's goods or service from those of other sellers. Brands are used in business, marketing, and advertising for recognition and, importantly, to create and ...
ranks in users' minds relatively to other brands in the category. This means that using
net promoter score
Net promoter score (NPS) is a market research metric that is based on a single survey question asking respondents to rate the likelihood that they would recommend a company, product, or a service to a friend or colleague. The NPS was developed by ...
is not useful by itself when marketers are looking to increase share of wallet, as it does not look at the category as a whole.
Previous research has also found that higher
switching costs of loyalty programs leads to higher share of wallet – regardless of customer satisfaction. A common way to increase share of wallet for retailers is to use
personalisation, and to offer shoppers discounts for related categories or products that could be relevant to them in order to increase their overall share of wallet. A
Mckinsey
McKinsey & Company (informally McKinsey or McK) is an American multinational strategy and management consulting firm that offers professional services to corporations, governments, and other organizations. Founded in 1926 by James O. McKinsey ...
report found using personalisation drives loyalty and share of wallet by 1–2% for retailers as well as decreasing marketing and sales costs by 10–20%.
See also
*
Churn rate
Churn rate (also known as attrition rate, turnover, customer turnover, or customer defection) is a measure of the proportion of individuals or items moving out of a group over a specific period. It is one of two primary factors that determine the ...
*
Customer acquisition cost
Customer acquisition cost (CAC) is the cost of winning a customer to purchase a product or service. As an important unit economic, customer acquisition costs are often related to customer lifetime value (CLV or LTV).
With CAC, any company can ga ...
References
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External links
Trust Wallet
Advertising
Promotion and marketing communications
Audience measurement