According to Gartner, 89% of companies plan to compete primarily on the basis of customer experience in 2016. Despite its popularity as a KPI in the boardroom, customer satisfaction rarely correlates to revenue or market share.
Authors Lerzan Aksoy and Tim Keiningham wanted to find a better way to find out why customers would choose a specific brand within a category—in other words, why they would allocate their money for one brand over another. At the AMA’s Analytics With Purpose conference in Scottsdale, Ariz., they outline a new success metric that’s more accurate than the Net Promoter Score in measuring a brand’s market share in their book The Wallet Allocation Rule. The most challenging part of measuring a customer’s experience is that it has to come from the customer in the form of online feedback and surveys. But customers are largely sick of filling out feedback forms, Keiningham says. But even if you can get customer satisfaction information through your Net Promoter Score or customer feedback, there are three big problems with that kind of customer feedback which can mislead marketers, he says.
There are three big problems with satisfaction data:
1. Some brands set themselves up as “money losing delighters”: Groupon’s most affordable, best-deal coupons generally make no money for the merchant. Homebanc mortgage lender valued customer satisfaction above all else, giving sales associates the directive to give customers close to whatever they asked for. “The best way to delight your customers is to give your product away—as long as you stay in business,” Keiningham says. These brands, while they have high customer satisfaction, are not big money makers.
2. A smaller customer base often equals happier customers: Customer satisfaction reached an all-time high for Kmart in 2001. Why? Kmart filed bankruptcy in 2001, so the customers that remained in 2001 were long-time Kmart loyalists, while less loyal customers stopped shopping there. Pizza chains, discount retailers, life insurance, banks and credit unions—for all of these markets, the bigger the company is the less satisfied the customers are.
3. Marketers’ measurements don’t actually link to behaviors: NPS explains only 1% of customers’ share of spending. The problem is that even that 1% is positive, so people will look to that number even if it’s small. As marketers, we need to remember that “no one is average.” If we look at data and the average, we’ll get a skewed look. You should look at where you stand within your competitors, not just how “satisfied” our customers are.
The only way you can improve you share of wallet is to improve your customer’s view of you within the entire marketplace. You want to look at “relative rank” rather than NPS or satisfaction. “Gaining share of wallet requires reducing customers’ need to use the competition.” Aksoy and Keiningham propose a new formula to use to replace what they say are inaccurate success metrics:
The Wallet Allocation Rule formula:
• Rank: The relative position that a customer assigns to a brand in comparison to other brands also used by the customer in the category.
• Number of brands: the total number of brands used in the category by the customer
1. Increasing satisfaction levels can be a useful component of a company’s strategy, but it doesn’t have to be. Often it isn’t compatible with market share growth—or even good business.
2. Three key problems in linking satisfaction and business performance:
a. Smaller = happier
b. Money losing delighters
c. Metrics don’t link to customers’ behaviors
3. It’s your score, not your rank! With the Wallet Allocation Rule, managers finally have the ability to link their current metrics to the spending customers allocate to their brands.