The Wallet Allocation Rule

The Wallet Allocation Rule

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Aroq's John Newton reviews Keiningham, Aksoy, Williams and Buoye's new book

Pop quiz - with so many firms focussed on improving customer satisfaction today, why has the division of market share between companies in so many categories remained so resolute? Is their combined customer-delighting activity canceling each other out? Or is something more fundamental being missed?

The authors of The Wallet Allocation Rule (Tim Keiningham, Lerzan Aksoy, Luke Williams, and Alex Buoy) set out to explore the relationship between customer satisfaction and business outcomes, and in doing so developed a formula which, they claim, captures what really matters - share of customer spend. But does the book raise more questions than it answers?

The Wallet Allocation Rule rests on the simple theory, proven throughout the book, that a brand's market share can be calculated from the rank given to it in a list of brands ordered by preference. What’s more, this same calculation can be used to work out a brand’s share of an individual customer's spend in a category, or Share of Wallet, and therefore, it can be used in customer segmentation. It's a compelling theory and one that leaves the reader feeling rather red-faced about the inferior satisfaction tracking initiatives that they might have sponsored previously.

Throughout, the authors’ draw on examples from different industries to show how their new rule works in action. Most of the examples used are from retail - grocery, pharmacy, DIY and personal banking - although some charts showing the correlation between Share of Wallet and Wallet Allocation in other industries appear early in the book. The examples given feel robust and far-removed from the company-of-the-month examples cited in other business books. That said, as a B2B marketer, I would have found examples of how the rule can be applied in businesses with fewer/larger commercial customers of interest, especially given the lack of third-party research on market share in many B2B sectors.

By far the biggest promise of the Wallet Allocation Rule is that it can be used to prioritise the activities that will most drive share. The authors’ claim that the rule reveals that convenience, rather than restaurant environment, is the real driver of share in fast food, and that the introduction of internet banking by retail banks is the biggest threat to credit unions’ share of deposits. Identifying these hidden levers of market share is arguably the most compelling idea in the book, and yet also the most poorly explained. The authors acknowledge that the depth of questioning to collect the data required will appear too onerous for many customers, and yet the recommended workaround is presented as an inadequate fudge. Although understandable - the authors’ know this is what they can charge real money for - this failure to explain in detail how to identify your true share drivers is no less disappointing. Calculating your Share of Wallet is free. Learning how to improve it - that’ll cost you.

Extraordinarily compelling though the book is, there is a central problem that is not addressed, and it's to do with the people who are expected to implement the rule, rather than the rule itself. For years, marketers have decried their exclusion from the ‘top table’ in business - a timid allusion to an unobtainable boardroom so elusive that its imagined layout somehow resembles that of a wedding banquet. Yet, the cheat code to access that room has been, for many marketers, the notion their surveys alone hold the key to understanding customer satisfaction, generally acknowledged as the route to growing share and long-term profits.

The authors, perhaps unaware of this poison-pact between marketers and their customer satisfaction programs, believe that marketers, the scales falling from their eyes, will rush to tell their board that all their investment in customer satisfaction tracking has been for naught. This is a huge barrier for implementation, and it is where the book falls down.

The ‘Making It Happen’ and ‘What’s Next’ sections at the back of the book are just ten pages long, and mainly offer advice on reducing tracking error. If you want to know more about implementation, you are encouraged to contact the authors - presumably a prelude to an engagement in consulting or training. The ‘book-as-rainmaker’ approach is as old as the hills, but when your book leaves the reader’s customer satisfaction program in tatters, this lack of practical advice on managing the switch to the Wallet Allocation Rule may deter all but the most emboldened marketer.

The authors’ of The Wallet Allocation Rule present as a robust theory, backed up data, charts, examples and a Harvard Business Review article - just as Fred Reichheld did when he established the Net Promoter Score almost a decade before. This powerful book will doubtless further reinforce the academic credentials of the Wallet Allocation Rule, but it may take further explanation, and some advice on how marketers can do some serious backtracking without losing face, for this superior metric to take hold.

Read more from John Newton here and more book reviews here.

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Author: The Marketing Society
Posted: 25 Jan 2016
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