Share of wallet

Last updated

Share of wallet (SOW) is a survey method used in performance management that helps managers understand the amount of business a company gets from specific customers.

Contents

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.[ citation needed ]

Application

Share of wallet is commonly used in B2B context, and in the finance, banking and retail sectors, to describe share-of-customer. Increasing share-of-customer is a key consideration increasing customer lifetime value. [1] The reason is that retaining and growing customers is cheaper than acquiring new customers. [2]

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." [3]

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 [a] category from the supplier". [4]

Research

Share of wallet and customer's loyalty and satisfaction are positively correlated. [5] As a result, marketers in recent years have spent more resources on developing loyalty programs. 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 ranks in users' minds relatively to other brands in the category. This means that using net promoter score 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. [6]

Previous research has also found that higher switching costs of loyalty programs leads to higher share of wallet – regardless of customer satisfaction. [7] 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. [8] A 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%. [9]

See also

Related Research Articles

E-commerce refers to commercial activities including the electronic buying or selling products and services which are conducted on online platforms or over the Internet. E-commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. E-commerce is the largest sector of the electronics industry and is in turn driven by the technological advances of the semiconductor industry.

<span class="mw-page-title-main">Loyalty program</span> Marketing strategy designed to encourage customers to continue to shop at a business

A loyalty program or a 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.

<span class="mw-page-title-main">Marketing</span> Study and process of exploring, creating, and delivering value to customers

Marketing is the act of satisfying and retaining customers. It is one of the primary components of business management and commerce.

<span class="mw-page-title-main">Distribution (marketing)</span> Making products available to customers

Distribution is the process of making a product or service available for the consumer or business user who needs it, and a distributor is a business involved in the distribution stage of the value chain. Distribution can be done directly by the producer or service provider or by using indirect channels with distributors or intermediaries. Distribution is one of the four elements of the marketing mix: the other three elements being product, pricing, and promotion.

<span class="mw-page-title-main">Pricing</span> Process of determining what a company will receive in exchange for its products

Pricing is the process whereby a business sets and displays the price at which it will sell its products and services and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the marketplace, competition, market condition, brand, and quality of the product.

In marketing, market segmentation or customer segmentation is the process of dividing a consumer or business market into meaningful sub-groups of current or potential customers known as segments. Its purpose is to identify profitable and growing segments that a company can target with distinct marketing strategies.

Relationship marketing is a form of marketing developed from direct response marketing campaigns that emphasizes customer retention and satisfaction rather than sales transactions. It differentiates from other forms of marketing in that it recognises the long-term value of customer relationships and extends communication beyond intrusive advertising and sales promotional messages. With the growth of the Internet and mobile platforms, relationship marketing has continued to evolve as technology opens more collaborative and social communication channels such as tools for managing relationships with customers that go beyond demographics and customer service data collection. Relationship marketing extends to include inbound marketing, a combination of search optimization and strategic content, public relations, social media and application development.

The loyalty business model is a business model used in strategic management in which a company's resources are employed so as to increase the loyalty of customers and other stakeholders in the expectation that corporate objectives will be met or surpassed. A typical example of this type of model is where quality of product or service leads to customer satisfaction, which leads to customer loyalty, which leads to profitability.

<span class="mw-page-title-main">Business-to-business</span> Commercial transaction between businesses

Business-to-business is a situation where one business makes a commercial transaction with another. This typically occurs when:

In marketing and consumer behaviour, brand loyalty describes a consumer's persistent positive feelings towards a familiar brand and their dedication to purchasing the brand's products and/or services repeatedly regardless of deficiencies, a competitor's actions, or changes in the market environment. It can also be demonstrated with other behaviors such as positive word-of-mouth advocacy. Corporate brand loyalty is where an individual buys products from the same manufacturer repeatedly and without wavering, rather than from other suppliers. In a business-to-business context, the term "source loyalty" may also be used. Loyalty implies dedication and should not be confused with habit, its less-than-emotional engagement and commitment. Businesses whose financial and ethical values rest in large part on their brand loyalty are said to use the loyalty business model.

In management, business value is an informal term that includes all forms of value that determine the health and well-being of the firm in the long run. Business value expands concept of value of the firm beyond economic value to include other forms of value such as employee value, customer value, supplier value, channel partner value, alliance partner value, managerial value, and societal value. Many of these forms of value are not directly measured in monetary terms. According to the Project Management Institute, business value is the "net quantifiable benefit derived from a business endeavor that may be tangible, intangible, or both."

Business marketing is a marketing practice of individuals or organizations. It allows them to sell products or services to other companies or organizations, who either resell them, use them in their products or services, or use them to support their work.

Referral marketing is a word-of-mouth initiative designed by a company to incentivize existing customers to introduce their family, friends, and contacts to become new customers. Unlike pure word-of-mouth strategies—where customers independently share information without company involvement or ability to track—referral marketing actively incentivizes and rewards existing customers for referring new ones, allowing the company to influence, track, and measure the referral process.

Value-based price, also called value-optimized pricing or charging what the market will bear, is a market-driven pricing strategy which sets the price of a good or service according to its perceived or estimated value. The value that a consumer gives to a good or service, can then be defined as their willingness to pay for it or the amount of time and resources they would be willing to give up for it. For example, a painting may be priced at a higher cost than the price of a canvas and paints. If set using the value-based approach, its price will reflect factors such as age, cultural significance, and, most importantly, how much benefit the buyer is deriving. Owning an original Dalí or Picasso painting elevates the self-esteem of the buyer and hence elevates the perceived benefits of ownership.

<span class="mw-page-title-main">Outline of marketing</span> Overview of and topical guide to marketing

The following outline is provided as an overview of and topical guide to marketing:

Customer engagement is an interaction between an external consumer/customer and an organization through various online or offline channels. According to Hollebeek, Srivastava and Chen, customer engagement is "a customer’s motivationally driven, volitional investment of operant resources, and operand resources into brand interactions," which applies to online and offline engagement.

Customer analytics is a process by which data from customer behavior is used to help make key business decisions via market segmentation and predictive analytics. This information is used by businesses for direct marketing, site selection, and customer relationship management. Marketing provides services to satisfy customers. With that in mind, the productive system is considered from its beginning at the production level, to the end of the cycle at the consumer. Customer analytics plays an important role in the prediction of customer behavior.

A revenue stream is a source of revenue of a company, other organization, or regional or national economy.

Customer retention refers to the ability of a company or product to retain its customers over some specified period. High customer retention means customers of the product or business tend to return to, continue to buy or in some other way not defect to another product or business, or to non-use entirely. Selling organizations generally attempt to reduce customer defections. Customer retention starts with the first contact an organization has with a customer and continues throughout the entire lifetime of a relationship and successful retention efforts take this entire lifecycle into account. A company's ability to attract and retain new customers is related not only to its product or services, but also to the way it services its existing customers, the value the customers actually perceive as a result of utilizing the solutions, and the reputation it creates within and across the marketplace.

<i>Journal of Service Research</i> Academic journal

The Journal of Service Research is a quarterly peer-reviewed academic journal that covers the field of business studies. The current editor-in-chief is Ming-Hui Huang. The journal was established by Roland Rust in 1998 and is published by SAGE Publications. The Journal of Service Research is sponsored by the Center for Excellence in Service at the University of Maryland's Robert H. Smith School of Business.

References

  1. ↑ Fripp, G (2014) Increasing Customer Revenues
  2. ↑ "Share of Customer: It Clearly Wins Over Market Share". BoostCompanies. 2016-10-23. Retrieved 2016-10-24.
  3. ↑ "Know Each Customer's Share-of-Wallet? Understanding Every Customer's True Potential « Forte Consultancy Group". Forteconsultancy.wordpress.com. 2010-12-30. Retrieved 2012-01-25.
  4. ↑ Mojir, N., Organizational Buying and Innovation Adoption Under Share of Wallet Contracts, Marketing Science Institute, Spring 2019 Trustees Meeting, 3 April 2019 accessed on 19 January 2025
  5. ↑ Keiningham, Timothy L.; Perkins-Munn, Tiffany; Evans, Heather (2003-08-01). "The Impact of Customer Satisfaction on Share-of-Wallet in a Business-to-Business Environment". Journal of Service Research. 6 (1): 37–50. doi:10.1177/1094670503254275. ISSN   1094-6705. S2CID   168160402.
  6. ↑ "Customer Loyalty Isn't Enough. Grow Your Share of Wallet". Harvard Business Review. 2011-10-01. ISSN   0017-8012 . Retrieved 2021-03-01.
  7. ↑ Wirtz, Jochen; Mattila, Anna S.; Oo Lwin, May (2007-05-01). "How Effective Are Loyalty Reward Programs in Driving Share of Wallet?". Journal of Service Research. 9 (4): 327–334. doi:10.1177/1094670506295853. ISSN   1094-6705. S2CID   167601592.
  8. ↑ "Basket Size Doesn't Matter - Basket Diversity Does. Here's Why". ciValue. 2018-02-05. Retrieved 2021-03-01.
  9. ↑ "Personalized experience for customers: Driving differentiation in retail | McKinsey". www.mckinsey.com. Retrieved 2021-03-01.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.