Wallet Allocation Rule - Rock-Solid Science

Rock-Solid Science

Most new approaches rely on anecdotes to support their claims (e.g. “Firm X adopted this new approach, and it transformed its business”). Although it is always nice to have a story, anecdotes mean something only if they are proved to work across companies and industries.

As these different investigations make clear, the Wallet Allocation Rule has undergone numerous, rigorous scientific tests. More important, it has passed them all!

Harvard Business Review

Customer Loyalty Isn’t Enough. Grow Your Share of Wallet

The article that introduced the Wallet Allocation Rule, a powerful tool for strongly linking commonly used loyalty metrics to share of wallet.

“Companies spend a great deal of time and money trying to improve customer loyalty by measuring and managing metrics like satisfaction and Net Promoter Scores. But traditional gauges of loyalty correlate poorly with what matters most: share of wallet. This is the percentage of a customer’s spending within a category that’s captured by a given brand, or store or firm. Customers may be very satisfied with your brand and happily recommend it to others—but if they like your competitors just as much (or more), you’re losing sales.”

MIT Sloan Management Review

The High Price of Customer Satisfaction

Managers often assume that improving customer satisfaction and financial performance go hand in hand. The reality, however, is much more complex.

“‘Satisfaction guaranteed or your money back.’ That business promise has been made to consumers since 1875, when Montgomery Ward used it to differentiate his mail-order catalog from other retailers. Commitment to customer satisfaction is now a vow many businesses make. It is common to find mission statements and marketing plans that specifically address customer satisfaction; compensation systems that incorporate satisfaction metrics into their bonus criteria; and advertisements that trumpet customer satisfaction awards.”

Handbook of Service Marketing Research

It’s Not Your Score that Matters

A thorough review of the scientific literature explaining the underlying theory and research for why the Wallet Allocation Rule works and traditional metrics (such as satisfaction and NPS) do not when linking to customer behavior.

“In recent decades, customer loyalty has gained both academics' and practitioners' attention as being one of the most important determinants of company growth. Arguably the most important manifestation of this loyalty as it relates to firm growth is the share of category spending (that is, share of wallet) that customers allocate to the various brands that they use. A great deal of research has examined the drivers of share of wallet (SOW). Most of this research has focused on the relationship between metrics like customer satisfaction, recommend intention, and repurchase intention on SOW. Yet while researchers agree that these variables are antecedents to SOW, research consistently finds weak relationships between satisfaction/intentions and SOW.”

Journal of Service Management

Perceptions Are Relative

A rigorous examination of 79,543 consumers who provided 258,743 observations regarding the brands that they use (over 650 brands) covering 20 industries from 15 countries examining the relationship between the Wallet Allocation Rule (and other approaches) and share of wallet.

“The results of this investigation find that relative satisfaction significantly outperforms absolute satisfaction levels in linking to customers’ share of category spending. Models based upon absolute satisfaction levels were consistently the worst performing models investigated. Moreover, we find that the most commonly used power laws in practice perform well compared to other models investigated in linking relative satisfaction to share of wallet. Finally, we note that there are significant differences in the complexity of the various approaches examined. Therefore managers need to consider the trade-off between relationship strength and complexity when selecting the best approach for use within their firms.”

International Journal of Bank Marketing

Linking Satisfaction to Share of Deposits: An Application of the Wallet Allocation Rule

A rigorous examination of 4,712 banking customers across the USA. The findings confirmed that the Wallet Allocation Rule strongly links to customers’ share of deposit allocations.

“Our investigation confirms that examining relative “ranked” satisfaction (via the WAR) correlates strongly with customers’ share of deposits. In this study, the WAR explained 55 percent of the variance in share of deposits, as opposed to only 9 percent for absolute satisfaction (and NPS).”

ESOMAR

Reality Check in the Digital Age

A comparison of the Wallet Allocation Rule with two other approaches (based upon the Zipf Distribution) in linking to share of wallet.

“This presentation examines a variety of classical survey measures to establish which measures link to reality and which do not. the time has come to sift through all of the “standard” measures and spring clean: what is worth keeping and what should have been thrown away a long time ago?”