The Wallet Allocation Rule

Winning the Battle for Share

Timothy L. Keiningham, Lerzan Aksoy, Luke Williams, Alexander J. Buoye

• Publisher: Wiley
• Year: 2015
• Print ISBN: 9781119037316
• eBook ISBN: 9781119037286
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Comportamiento del consumidor

Customer Loyalty Isn't Enough—Grow Your Share of Wallet

The Wallet Allocation Rule is a revolutionary, definitive guide for winning the battle for share of customers' hearts, minds, and wallets. Backed by rock-solid science published in the Harvard Business Review and MIT Sloan Management Review, this landmark book introduces a new and rigorously tested approach—the Wallet Allocation Rule—that is proven to link to the most important measure of customer loyalty: share of wallet.

Companies currently spend billions of dollars each year measuring and managing metrics like customer satisfaction and Net Promoter Score (NPS) to improve customer loyalty. These metrics, however, have almost no correlation to share of wallet. As a result, the returns on investments designed to improve the customer experience are frequently near zero, even negative.

With The Wallet Allocation Rule, managers finally have the missing link to business growth within their grasp—the ability to link their existing metrics to the share of spending that customers allocate to their brands.

• Learn why improving satisfaction (or NPS) does not improve share.
• Apply the Wallet Allocation Rule to discover what really drives customer spending.
• Uncover new metrics that really matter to achieve growth.

By applying the Wallet Allocation Rule, managers get real insight into the money they currently get from their customers, the money available to be earned by them, and what it takes to get it. The Wallet Allocation Rule provides managers with a blueprint for sustainable long-term growth.

Chapter 1
It's “Oh My God!” Bad

Marketing is too important to be left to the marketing department.¹

—David Packard, cofounder and past chairman, chief executive officer (CEO) and president of Hewlett-Packard

• “Marketing measures ROI [return on investment] in terms of marketing, such as customer satisfaction and brand value instead of the most relevant relationship, the one between spending and the gross profit generated from these investments…brand value! What in God's name is this anyway? It's not as if our shareholders care.” (CEO of a Spanish telecommunications firm)
• “There is a disconnect between our overall strategy and what marketing understands to be our customers.” (CEO of an Austrian retailer)
• “Marketers are, simply put, often disconnected from the financial realities of the business.” (CEO of a German financial institution)
• “Marketers make decisions based upon gut feelings rather than a solid ROI analysis.” (CEO of a U.S. professional services firm)²

CEOs around the world have stopped trusting their chief marketing officers (CMOs). Our research proves it.³ The findings are sobering. The majority of CEOs can't bring themselves to say that marketing is strategically relevant.⁴ Oh my God!

This is a major problem. Marketing's job is to bring the voice of the customer to the company. Customers are the only reason companies exist, and marketing is charged with overseeing the customer experience. In fact, 90 percent of CMOs are personally responsible for the overall customer experience management efforts of their firms.⁵

Unfortunately, for many corporate leaders marketing has become, to quote the CEO of an Italian telecom, a “function not on the top of my everyday priority list.”⁶ Or worse! CEOs often view marketing as a money pit. To quote the CEO of one U.S. retailer, “Marketing [has] great ideas but no clue how to measure its impact on what really counts How can I allocate them a budget that disappears into a black box while others can deliver me an ROI for every dollar I give them?”⁷

Marketing's detractors likely don't see a problem at all—and to be sure, there are lots of detractors. Ironically, for a management science charged with managing the reputation of their companies, marketing has a terrible reputation among consumers and business professionals.⁸ Only 10 percent of the population has a positive impression of marketing. By contrast, 62 percent have a negative opinion of marketing. Moreover, detractors can rightfully point out that companies still exist and that companies must, by definition, have customers. So companies can exist just fine without much help from marketing. What difference does it make that marketing has lost strategic relevance with CEOs?

The reason is best summed up in the words of Peter Drucker, the father of modern management.

There is only one valid definition of business purpose: To create a customer Because it is its purpose to create a customer, any business enterprise has two—and only these two—basic functions: marketing and innovation. They are the entrepreneurial functions. Marketing is the distinguishing, the unique function of the business. Any organization in which marketing is either absent or incidental is not a business and should never be run as if it were one.⁹

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Marketing's failure will ultimately be reflected in the customer experience. In fact, it already is. Given the current CEO-CMO breakdown, it's not surprising to find a corresponding breakdown between the way senior executives view their companies and the way their customers do. After all, it's marketing's job to be the champion of the customer for the CEO. What is surprising, however, is the enormity of the gap. A study reported in the Harvard Management Update finds that 80 percent of company executives believe that their companies provide a “superior” customer experience. Only 8 percent of their customers agree.¹⁰ This finding is confirmed in the Temkin Group report, “The State of Customer Experience Management, 2014,” which found that only 10 percent of firms are customer centric.¹¹

Of course, positive change for customers will happen only when CEOs view their companies from their customers' perspective. After all, there's no need to change things when you believe you are already doing a superior job.

It is easy to blame CEOs for being shortsighted. The sad truth is that CEOs' complaints about marketing are valid. Marketers do a terrible job of linking their efforts to tangible business outcomes. To be fair to CMOs, it isn't for lack of desire or effort. The problem is more pernicious. All too often, the expected linkage isn't there—and it never was! The underlying assumptions CMOs use to justify most of their investments in improving the customer experience are wrong.

Growth Is Hard to Find

CEOs at every public company are obsessed with achieving two outcomes: profits and growth. The reason for profits is obvious: Profits determine a company's viability.

It is growth, however, that is the lifeblood of companies. It is arguably the most important gauge of a company's long-term success. It is what creates economic value for shareholders. As a result, growth is the common goal of every CEO of a public company and one of the most important metrics by which the board of directors will assess a CEO's performance.

Unfortunately, growth is a goal that is seldom achieved. An investigation of 4,793 public companies reported in the Harvard Business Review found that fewer than 5 percent achieved net income growth of at least 5 percent every year for five years.¹² Furthermore, once growth stalls, the odds of ever resurrecting even marginal growth rates are very low.¹³ Consequently, although there is no question that growth is the imperative, the dismal results for most companies prove that it's hard to know just how to make it happen.

Deconstructing Market Share

If the goal is market share growth, then we need to begin by understanding what actually drives market share. Strangely, although growth is the goal of virtually every CEO of every public company, few managers know the main components of market share. Virtually all managers calculate market share as f...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Preface
• Foreword
• Chapter 1: It's “Oh My God!” Bad
• Chapter 2: Eureka! The Discovery of the Wallet Allocation Rule
• Chapter 3: The Wallet Allocation Rule in Action
• Chapter 4: Customers as Assets
• Chapter 5: New Metrics That Matter for Growth
• Chapter 6: Making It Happen
• Afterward: What's Next?
• Appendix A: Quick Start Guide
• Appendix B: Frequently Asked Questions
• Index
• End User License Agreement