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Share Of Wallet Definition
Share of Wallet (SOW) is a revenue-based marketing metric used by companies to determine how much money a consumer spends on their products or services in comparison to their competitors in a given category. It enables managers to measure brand success based on revenue generated by specific customers and take appropriate action.
SOW, also known as wallet share, denotes a positive relationship between customer loyalty and satisfaction with a particular brand. Furthermore, the brand can assess its market position and future sales growth in the target market. It can then concentrate on retaining existing consumers and exceeding their expectations to boost profits.
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- Share of Wallet (SOW) refers to the amount of money a customer prefers to spend on a brand's products and services rather than competing brands' items.
- It helps brands assess their market position, popularity, success, future sales development in the target market based on revenue generated by specific customers.
- A brand can increase wallet share by using focused marketing, researching competitor products, selling complimentary items to loyal customers, and making consumers spend more.
- It differs from market share in that the latter refers to a company's share of overall sales in a particular category or location and the percentage of the market it controls in terms of revenue and consumers.
Understanding Share Of Wallet
Share of Wallet (SOW) is the percentage of money in customers' wallets that they regularly spend on a specific brand's products or services rather than those of its competitors. As a result, the brand generates revenue from consumer spending and focuses on retaining existing customers to optimize earnings. This method also allows managers to measure the brand’s market position and popularity.
Consumers stick to a brand based on their affordability and requirements. The wallet share, thus, refers to the portion of a budget allocated for products from a single brand. Therefore, to retain customers, businesses implement various marketing campaigns, customer engagement tactics, loyalty programs, and discount measures in target markets. The concept finds significance in the financial sector, such as banking, insurance, and retail.
Share of Wallet analysis directly influences the customer lifetime value. For example, if a customer regularly spends a particular amount on a specific brand’s product, it implies their loyalty. Keeping track of the revenue coming from a specific customer helps brands recognize their loyal customers. Introducing complementary products and living up to consumer expectations will increase their wallet share.
Real World Examples
Let us consider the following Share of Wallet examples to understand the concept better:
Example #1
Shelly buys cosmetics for $80. While she favors one brand for hair care, she is fussy about the skincare products of another. As a result, Shelly's wallet is 60% occupied by the haircare brand, and the skincare brand occupies the remaining 40%. As a result, her cosmetics spending is split 60:40 between hair care and skincare product companies.
Example #2
Purchasing insurance and banking products and services have grown in popularity. As a result, a growing number of companies are emerging to provide similar services. According to the research conducted by the American experience management firm Qualtrics, personalized experiences help businesses increase the SOW for their brands. People prefer brands that provide specific goods and services based on their preferences and offer related support.
Why Share Of Wallet Is Important?
Share of Wallet is a metric to determine the business performance by identifying their loyal customers and retaining them by improving the quality of their products and services. Furthermore, SOW enables businesses to comprehend customers' purchasing behaviors and to have a well-established market. They can also create successful sales, marketing, and advertising initiatives to increase income and sales.
SOW enables brands to understand customers who are too likely to buy their supplementary products. As a result, when a company launches a new product, it will have a better sense of the wallet share of its current customers. In summary, target marketing becomes easier and more effective with wallet share.
Frequently Asked Question (FAQs)
Share of Wallet is the portion of money in customers' wallets that they consistently spend on a certain brand's products or services rather than competitors'. As a result, the brand earns money from consumer spending. In addition, it shows a good association between customer happiness and loyalty to a specific brand. Managers can use this strategy to assess the brand's market position and appeal.
Brands can increase loyal customers’ wallet share by:
- Offering complimentary products to loyal customers that live up to their expectations
- Using various marketing efforts, customer interaction tactics, loyalty programs, and discount measures in target areas to retain customers
- Increasing brand loyalty and customer spending
- Focusing on target marketing
- Researching rival offerings
#1 - Helps a company's performance by recognizing and retaining loyal customers by enhancing the quality of their products and services
#2 - Allows firms to understand their clients' purchasing habits and develop a market
#3 - Assists in the development of effective sales, marketing, and advertising campaigns to boost revenue and sales
#4 - Provides a better understanding of existing consumers' wallet share
#6 - Makes target marketing easier and more effective
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