Luke Williams,Timothy Keiningham,Alexander J. Buoye,Lerzan Aksoy

The Wallet Allocation Rule

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  • Egor Brushas quoted4 years ago
    To use the Wallet Allocation Rule to predict share of wallet, follow these steps:

    Establish the firms/brands in a product category that customers use.
    Ask an overall satisfaction/loyalty question to gauge performance for each firm/brand a customer uses.
    Assign a performance rank for each firm/brand for each customer (e.g., the highest rated firm/brand based on the overall satisfaction/loyalty question used would be ranked 1, the next highest 2, etc.).
    Calculate a customer-level Wallet Allocation Score (i.e., the customer's predicted share of wallet) using the rank and number of brands used by the customer.
    If you want to calculate firm/brand level scores, simply average the Wallet Allocation Scores for each firm's/brand's customers.
  • Egor Brushas quoted4 years ago
    A big problem in effectively executing the Wallet Allocation Rule is that managers seldom understand what it really takes (in terms of benefits versus costs) to actually perform better than competitors. As a result, companies rarely identify and focus on the biggest opportunities for growth.

    In their Harvard Business Review article on creating organic growth, Booz & Company consultants Favaro, Meer, and Sharma present three variables for estimating potential growth opportunities that align well with the Wallet Allocation Rule approach. We believe these should be standard in any company:12

    Headroom for growth: “The number of clients and the share of wallet the company doesn't have minus the number of clients and share of wallet it is unlikely to ever have.”
    Switchers: “The clients who could be enticed to switch to a provider with a better offering.”
    Needs-offer gap: “The difference between the benefits that would cause those clients to switch their business and the benefits their current provider offers.”
  • Egor Brushas quoted4 years ago
    A market sample provides managers with insight into the dynamics of the entire category, not just customers of your business. As such, managers can align their metrics with the market shares of their brands as well as competitors.

    Given this, why would any manager choose to use a customer-only sample? In a word, cost. Conducting a Wallet Allocation Rule analysis requires collecting information for a valid sample of your brand's customers. When using a market representative sample, that typically means collecting information from a large number of people.
  • Egor Brushas quoted4 years ago
    The first thing a manager must decide on is whether to collect a market representative sample (i.e., a sample of all customers in the category—not just your own customers), or a customer sample (i.e., a sample of customers of your brand only). Both types of samples can work, but each come with pros and cons.
  • Egor Brushas quoted4 years ago
    If you want to make enemies, try to change something. 2
    —Woodrow Wilson, twenty-eighth president of the United States
  • Egor Brushas quoted4 years ago
    When that is the case, managers can still place attributes in a relative framework by presenting customers with a checklist of options rather than having them rate each attribute (see Figure 5.6). This involves using a grid with one column for each brand that a customer uses and one row for each driver attribute. The objective is to have respondents select the brand(s) that perform best on that attribute.

    Figure 5.6 “Share of Best” Grid
    Thinking of the brand(s) you currently use, which would you associate with being best in each of the following areas? (Check all that apply.)
  • Egor Brushas quoted4 years ago
    Managers have traditionally relied on key driver analysis to guide them about the most important issues affecting customer satisfaction (or Net Promoter Score). Traditional driver analyses examine the relationship between customers' satisfaction with specific attributes of the service experience and their overall satisfaction levels.

    Traditional driver analyses, however, will not work with the Wallet Allocation Rule. With the Wallet Allocation Rule, satisfaction is not measured in a vacuum. What's important here is the rank of a brand's satisfaction level compared with that of its competitors. Specifically, overall satisfaction ratings for all brands that a customer uses are required in order to establish the proper context.
  • Egor Brushas quoted4 years ago
    Part of the problem is a general misunderstanding of how satisfaction (and Net Promoter Score) link to customers' buying behaviors. The absolute scores themselves are almost meaningless. What matters is whether or not the customer rating is higher for your brand than for competing brands. The lion's share of a customer's wallet goes to his first-choice brand. Therefore, it is vital to understand how a brand's satisfaction level translates into a position as the customer's first choice.

    By analyzing your customers' levels of satisfaction and their corresponding first-choice selection, you can place each of them into one of four categories, as shown in the matrix “Satisfaction and First Choice” (see Figure 5.5).
  • Egor Brushas quoted4 years ago
    Used together, satisfaction and market share information provides managers with important insight into the nature of their brand and the markets in which they compete. Remember, the relationship between customer satisfaction and market share is negative in many industry categories. Without a good understanding of the nature of the relationship in your industry, and of where your firm stands vis-à-vis competitors, it is very difficult to effectively manage the customer experience in the pursuit of market share.
  • Egor Brushas quoted4 years ago
    share of wallet is a metric that can be translated directly into dollars, it is imperative to understand precisely how much of your customers' money is going into your competitors' cash registers. To do this, managers need to simply do the following (see Figure 5.2):

    Divide the total sales revenue that your customers give to your brand by the average share of wallet that your customers give to your brand. This will give you the total dollars your customers spend in the category across all brands (yours and competitors).
    Multiply your customers' total category spending by the average share of wallet your customers give to each of the brands that they use. This will give you the total dollars your customers spend with each competing brand.
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