Research by a Fordham professor shows that customers who express loyalty to, or satisfaction with, a brand don’t necessarily put their money where their mouth is.
In a study published last month in the Harvard Business Review, Lerzan Aksoy, Ph.D., associate professor of marketing, joined with colleagues from Vanderbilt University and Ipsos Loyalty to develop a formula called the Wallet Allocation Rule.
Over a two-year period, the researchers examined buying habits of 17,000 customers in several industries. They discovered that the rank that consumers assign to a brand (i.e., first choice, second choice, etc.) can actually predict the “share of wallet” relative to other brands, according to a simple mathematical formula.
Furthermore, the study reported that raising customer satisfaction levels with a brand didn’t necessarily translate to actual spending on that brand.
For example, researchers said that Walmart had a “rude awakening” when it undertook Project Impact—a 2008 remodeling initiative to improve the appearance of stores and raise customer satisfaction. Customers said they were more satisfied, but they didn’t necessarily spend more money at the store.
“Instead, what companies need to do is to move away from improving satisfaction for its own sake, and toward trying to improve their company’s relative ranking among their competitors in their customers’ minds,” Aksoy said.
Even being tied for first place is not enough; if customers choose two brands equally for first place, it means a rank of 1.5 in terms of wallet share, not one.
“Improving your rank requires minimizing the reasons your customers have for using the competition,” she said. “Customers have legitimate reasons for using multiple brands in a category. Therefore, it is imperative to ask [customers]why they choose another brand, clearly understand those reasons, and develop strategies to address them.”
“The Wallet Allocation Rule is clear on this point: if you can’t improve your rank, you can’t improve your share of wallet.”