Share of wallet vs. market share
Now that we've discussed what share of wallet is, let's go over the difference between share of wallet vs. market share.
Your market share is the percentage of a market that you control, and this number can be measured by your revenue or your total number of customers. Meanwhile, share of wallet is a more narrow subset of the data, and it measures how much a certain customer spends on your business versus your competition.
Understanding this difference can help you decide where to focus your marketing efforts. If you want to boost your market share, you need to acquire new customers. But if you want a higher SOW, you need your current customers to spend more on your brand.
Why share of wallet is important?
Share of wallet helps you better understand your customers' behaviors to increase customer loyalty and retention. It can also be faster and more effective to increase SOW than to grow your market share.
These are some of the many reasons why share of wallet is vital for your business:
Increases customer loyalty and retention
Customers vote with their wallets. This makes share of wallet a vital metric for businesses because the more loyal customers are to your brand, the more revenue you'll bring in.
By understanding your customers' behaviors, you can cater your products to them, increasing customer loyalty and retention.
Improves revenue potential
Have you reached the full potential of revenue from your current customers? There's probably room to grow each customer's share. A few places where you can increase revenue include:
- Encouraging more frequent purchasing from your storefront
- Facilitating larger orders through bulk discounts
- Offering premium versions of often-used products
- Setting up subscriptions for friction-free repeat purchases
- Developing related products and services that fit within the brand
It gives you a competitive advantage
Competing with other businesses isn't just about generating interest from new customers. Retention matters, and companies that invest time and effort to cultivate relationships with their repeat customers have a significant advantage in the marketplace.
Loyal customers tend to spend more, buy more frequently, and leave positive reviews. They may even become volunteer ambassadors for your brand. Brand loyalty can't be purchased, but it can grow over time. Having loyal customers gives you a competitive advantage because you know those customers will always choose you.
Improves understanding of customer behavior
Customers juggle a number of factors when they decide where to make a purchase. This can include price, convenience, positive word of mouth about a particular brand, and much more.
Which of your marketing campaigns convinced your audience to upgrade to your luxury line? Why did a repeat customer buy from your competitor during Black Friday sales? Share of wallet can show your brand what's working and what needs improvement.
How to measure share of wallet
To measure your share of your wallet, you need to follow the wallet allocation formula. You just need to know the total number of competing brands and your rank within that list. Next, plug those numbers into this formula:
Share of wallet = 1-[rank/(# of brands+1)]*(2/# of brands)
Let's try an example. What if there are five brands in the area, and a certain customer has ranked your business second? The formula to calculate SOW would look like this:
1- (2/6)*(2/5) = 0.268
In this situation, your business would have a 26.8% SOW for this specific customer.
Strategies to increase your company's share of wallet
If you want to increase your share of your wallet, you need to look at the competition. What's bringing customers over to other businesses? How do you up your game to compete?
Maybe they have an intuitive website design and a more convenient checkout. Perhaps there's a specific product they have that you don't carry. Are customers drawn to longer warranties or loyalty programs? Identify and strengthen your weak spots relative to other brands to increase your company's share of wallet.
Understand your customers
What do your customers need and want from your brand? Customer needs tend to point toward problems you may be able to solve. Customer wants can be aspirational or luxury items that they desire. Understanding your customers can help you create products that cater to these needs.
Another area to explore is what your customers value. Some customers will spend more on a brand that shares similar values. This could include selling fair trade goods, using eco-friendly packaging, or donating to a popular charity.
Improve customer satisfaction
How satisfied are people with your brand? This is a common question that you can gauge through customer surveys. You can boost satisfaction through a number of avenues, like focusing on excellent customer service, shifting price points, and improving in-store experiences.
Offer loyalty programs
A rewards program builds even more value into your already-beneficial services or products. These can be financially based, such as getting a discount after buying in.
Other programs have more intangible rewards. For instance, businesses may give loyal customers an early look at exciting new software in development.
Provide personalized experiences
Customers can buy from companies that offer a generic, neutral shopping experience. However, they won't develop as much connection to that brand. To be memorable, look for ways to build personalization into the purchasing journey. These could include:
- Mailing list segmentation to roll out marketing campaigns tied to different demographics
- Friendly reminders about their last purchase to make reordering easy
- Emails addressed directly to them or referring to their interests
This strategy involves selling related products and additional services. For instance, a skincare line could branch out to makeup, bath products, or at-home spa treatments. This lets customers take care of all their skin care needs in the same place.
Customers are loyal to brands that give them great products and a pleasant experience. Your competition will struggle to draw them away with short-lived sales and promotions. It's also easier to launch new products to a loyal base.
Maximize business growth with share of wallet
Share of wallet is a significant number that can give you a snapshot of revenue potential from your current customers. It also helps you create strategies that increase brand loyalty and customer retention.
You can optimize your share of your wallet by cross-selling items, creating loyalty programs, and providing personalized experiences. However, the best way to increase your share of your wallet is to build a deeper understanding of who your customers are and what they need from your brand.
Fortunately, Mailchimp's tools and services can help you manage your customer relationships. Even a well-designed email marketing campaign will miss the mark if you don't understand and meet customer needs. But with Mailchimp's suite of tools and resources, you can better understand your customers and elevate your marketing strategy, all within our convenient platform.