In retailing, consumers typically patronize multiple outlets. Thus, an important issue is why consumers vary in how they divide their purchases across outlets and how outlets can get a greater share of consumer expenditures. Two potential avenues for increasing customer share are to raise customer satisfaction, and increase repeat purchase through loyalty cards.

Share of wallet (SOW) is the dollar amount an average customer regularly devotes to a particular brand rather than to competing brands in the same product category. Companies try to maximize an existing customer’s share of wallet by introducing multiple products and services to generate as much revenue as possible from each customer. A marketing campaign, for example, may have a stated goal of increasing the brand’s wallet share for specific customers at the expense of its competitors. Share of wallet focuses on a brand’s own customers and seeks to maximize the dollars they spend regularly on that brand rather than on a competing one. Companies might identify their most loyal customers ranking them by the number of products they use or the amount of revenue they generate.

It can be very useful to know whether your customers are satisfied and would recommend you to their friends and colleagues. Offering additional services to up-sell a client could prove fruitful since multi-product customers are likely to have a favorable view of the company. Also, new products could be offered to loyal customers before the public, which would add to revenue and enhance brand loyalty. The benefits of increasing a customer’s share of wallet go far beyond boosting revenue and include improving client retention, customer satisfaction, and creating a loyal, built-in market from which to offer new products in the future. Increasing wallet share can be a less expensive, more efficient, and therefore a more profitable strategy for boosting revenue than attempting to expand overall market share.

It’s important to note that wallet share and market share are two different concepts. Increasing share of wallet can mean adopting a competitor’s best ideas. It also might mean identifying goods or services that are a logical extension of the business but can increase its share of wallet by supplanting rivals. The Wegmans supermarket chain carries all of the usual grocery items, but its vast ready-to-eat section might be its true share-of-wallet extender. Its selections compete against every takeout restaurant between its store and the customer’s home.


Advantages of Share of Wallet

Thus, as against both the aforementioned measures, Share of Wallet becomes a more reliable, more consistent measure of growth. It very clearly states how much amount your customer spends for your products exclusively and has the following advantages:

  1. Share of Wallet is a concrete measure of customer’s spending for your brand, measured over a fixed time interval.
  2. It helps the business in clearly identifying who its high-value and repeat customers are.
  3. It assures the company of the success of its marketing and branding strategies.
  4. It allows the company to focus on its high-value customers as in this era of niche marketing and specialization; it is far more advisable to retain the existing customers and gain bigger shares of their spending rather than acquiring new customers.
  5. It also helps in forming marketing strategies and product mix that will entice the existing customers to repeat their shopping experience with your brand and trust your brand enough to try the latest products that you introduce in the market.
  6. This increased spending by existing customers will eventually lead to increase in market share.
  7. Higher spending and brand loyalty of existing customers may automatically bring in new customers.
  8. Higher share of customer’s wallet leads to high lifetime value of a customer. Lifetime value means a customer stays with your company for a very long period of time and buys products in more than one category happily.


Examples of Share of Wallet

Let’s say as an example when McDonald’s added a breakfast menu; some customers may have switched their morning routine and started going to McDonald’s restaurants rather than to Dunkin’ Donuts. McDonald’s had captured a few more of their existing customers’ dollars spent on fast food as well as some new clients. As a result, Dunkin’ Donuts might respond by expanding its breakfast menu to include egg sandwiches, possibly in order to lure back some of those breakfast customers.

Another example where share of wallet is in practice today is in the banking industry. A bank’s executive management might step up its cross-selling efforts, which is selling complementary products and services to existing clients. A wealth management client might get referred to an in-house mortgage representative when the customer is in the market for a new home. A checking account customer might be encouraged to apply for a car loan at the bank. The bank is not gaining new customers through this practice but is increasing its share of wallet among current customers. In both examples, an increase in spending and revenue from each existing customer base occurred as opposed to money being spent at a competitor.

Thus, SOW is commonly used in the finance and banking sectors to describe share-of-customer. Increasing share-of-customer is a key consideration increasing customer lifetime value. The reason is that retaining and growing customers is cheaper than acquiring new customers.