Timothy Keiningham, Global Chief Strategy Officer for Ipsos Loyalty, is the co-author of The Wallet Allocation Rule: Winning the Battle for Share, which is a comprehensive guide for marketers who want to win their share of customers’ hearts, minds, and wallets.
The Wallet Allocation rule is a proven link to the most important measure of customer loyalty: Share of Wallet.
Keiningham, who hosted a webinar on the topic last week, followed that up with a Q&A from attendees who wanted to know more about the Wallet Allocation rule and its impact on customer loyalty, customer engagement, and brand loyalty.
Are there certain industries where satisfaction does align well with share of wallet?
Keiningham: We have never seen an industry where satisfaction and share of wallet align well at the individual customer level. The percentage of variance explained is almost always less than 5% and is typically around 1%. In fact, research I co-authored which will appear in the next issue of the Journal of Service Management (a peer reviewed scientific journal) examined data from 79,543 consumers who provided 258,743 observations regarding the brands that they use (over 650 brands) covering 20 industries from 15 countries. Absolute satisfaction levels were found to do a terrible job of linking to share of wallet.
How does a firm incorporate the WAO (Wallet Allocation Optimizer) methodology with their current Customer Satisfaction process?
Keiningham: The good news is that the Wallet Allocation Rule doesn’t require throwing out your current CSAT/NPS program. It does, however, require adding a few additional questions. At the most basic level, your survey must collect CSAT/NPS information for each brand in the category that the customer
uses. We also suggest collecting share of category spending information within the survey to help validate Wallet Allocation Rule predictions.
Finally, we suggest collecting relative performance information regarding attributes that drive customers’ overall perceptions of the brand. Unfortunately, asking a full battery of questions for every brand a customer uses is impractical. 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. This involves using 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.
Is wallet allocation essentially ranking NPS/satisfaction as it relates to how much a customer spends with you/how profitable that customer is? And, in the SOW (Share of Wallet) equation, how is the ‘rank’ variable measured?
Keiningham: Rank reflects relative “ranked” satisfaction. In other words, the highest satisfaction level a customer gives to a brand he uses in the category is ranked “1”, the second highest is given a “2” and so forth. We do not assign ranks based upon customers’ spending levels, as this would be circular logic (i.e.
The highest rank automatically corresponds to the highest spending levels). Instead, the goal is to link the perceptual metrics we are collecting in our surveys (e.g. satisfaction) to customers’ buying behaviors.
Are distribution effects taken into account? Meaning some customers cannot use the brand they want to use because it is not available for that purchase occasion.
Keiningham: This is a very important issue. We refer to these issues as “barriers” (i.e. there is some market force that causes people to buy something other than their preferred brand.) These market barriers can dramatically influence customers’ willingness and ability to devote a greater share of their business to their preferred brand.
The Wallet Allocation Rule gets at the share of wallet that would be allocated to the brands a customer currently uses absent market barriers. Therefore, when running a Wallet Allocation Rule study, we recommend including barriers as a part of the survey to understand their impact on customers’ buying decisions.
What survey questions should be asked for SOW?
Keiningham: There are several easy ways to get at this. One is to ask customers something similar to “of the last 10 purchases, how many were with X?” That tends to work well in frequent purchase situations. At other times, it is easier to ask a total spend ($) in the category for a set time frame, and then ask respondents to estimate the percentage of spending given to each of the brands that the customer uses.