What Is Share Of Wallet (SOW)?
Share of wallet (SOW) represents a customer's total spending allocated to a specific brand in a product category.
Let me explain it directly: 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. As a business owner or marketer, you should know that 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. For instance, a marketing campaign might have a stated goal of increasing the brand's wallet share for specific customers at the expense of its competitors.
Key Takeaways
- Share of wallet is the amount an existing customer spends regularly on a particular brand rather than buying from competing brands.
- Companies grow wallet share by introducing multiple products and services to generate as much revenue as possible from each customer.
- A marketing campaign might focus on boosting spending by existing customers rather than increasing the product's overall market share.
- Benefits from increasing a client's share of wallet include added revenue, improved client retention, customer satisfaction, and brand loyalty.
Understanding Share of Wallet
Although companies actively engage in sales activities to generate new clients, maximizing the amount of revenue from every existing client is equally as important. I want you to understand that 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. You might identify your most loyal customers by ranking them based on the number of products they use or the amount of revenue they generate. 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.
Share of Wallet vs. Market Share
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 for you to note that wallet share and market share are two different concepts.
Market share refers to a company's percentage of total sales in its category or a specific geographic region. For example, if bank executives wanted to add new business clients, they would analyze the existing market to determine how many businesses were located in that region. From there, the management could determine what percentage of the total customers in the region bank with them. So, if the bank had 1,000 customers and there were 10,000 businesses in that region, the bank's market share would be 10% for that region. Calculating market share helps companies to determine the size of the opportunity in a region. The same analysis could be applied to a specific product or service.
Both market share and wallet share focus on growing revenue from customers. However, growing market share focuses on attracting new clients from the competition. On the other hand, share of wallet focuses on growing revenue from existing clients by expanding the number of products being used–which might also be taken from the competition.
Target Marketing to Grow Share of Wallet
A campaign to increase a brand's share of wallet focuses on competing more effectively to take away some of a competitor's business. Such a campaign might begin with an attempt to identify exactly what a customer finds at a competitor. It may be a broad issue of quality, price, or convenience, but it may be very specific. A competing grocer might have more vegan selections or superior fresh produce. It may have faster checkout or free delivery.
Increasing the 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.
Important Note
Increasing market share is an increase in a brand's total sales within its category while increasing share of wallet is additional revenue from existing customers.
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.
Other articles for you
The present value of an annuity calculates the current worth of future payments from an annuity using a discount rate based on the time value of money.
An economy is a system involving production, consumption, and distribution of goods and services within a region or entity.
Secular in finance describes long-term market trends or stocks unaffected by short-term fluctuations.
An offshore banking unit is a specialized bank branch in an international financial center that handles foreign currency transactions with greater regulatory flexibility.
PayPal is a secure online payment platform that enables users to send, receive, and manage money transfers, purchases, and business transactions.
The Durbin Watson statistic tests for autocorrelation in regression residuals, ranging from 0 to 4, where 2 indicates no autocorrelation.
A fixed annuity is an insurance contract providing guaranteed interest and income for retirement, differing from variable annuities in risk and returns.
Accumulated depreciation tracks the total value reduction of assets over time on a company's balance sheet.
Build America Bonds were taxable municipal bonds with federal subsidies to help local governments raise capital during the 2008 recession, introduced in 2009 and expired in 2010.
A Grantor Retained Annuity Trust (GRAT) is an estate planning tool that helps minimize gift and estate taxes when transferring wealth to family members.