The "Share Of Wallet" Concept

Many people are familiar with the 80/20 principle in marketing. Which is that 80% of your revenues will come from about 20% of your customer base.

However, there is another concept which you can use to help increase your profitability. This is whats known as "share of wallet."

Share of wallet is what percentage of a customers spending in your product cataloger is spent on your company. Think of it this way. You offer health and wellness products. Your customer is a devoted health enthusiast.

They spend on average $25 a week on products from your company. They also spend $13 a week on company B, and $31 a week on company C.

This means the total spending by this customer is $69 per week, of which you have a $25 share of wallet or 36%.

By analyzing your customers spending habits and devising ways to increase your brands share of wallet - you can increase your company profits.

Shifting From Customer Acquisition to Customer Retention

One important shift to take which is often neglected online is moving from acquiring new customers to retaining your current customers.

Its about basing your businesses revenue off an existing set of loyal customers instead of acquiring new customers.

Our research has shown that repeat sales account for approximately 70% of the average businesses revenue. That means only 30% of your revenue is probably going to come from new customer acquisition over the long term.

However the fallacy that most businesses make is focusing their efforts and advertising dollars on acquiring new customers -- instead of strengthening the relationship with their current customers.

Of course in the beginning when you have no customers you must acquire them.

However it is important to be ready to make the shift to focusing primarily on retention instead of acquisition to strengthen your marketing.

Retention is often less expensive and makes more liberal use of mediums such as customer service, rewards programs, and other low cost retention strategies.

Furthermore selling to your existing customer base is less expensive than acquiring a new customer, so your profits are also higher.

You must purposely create and manage your relationships with your customers.

You can take everything away from a company and it can still succeed as long as you do not take away its customers.

Employees can be replaced, buildings can be rebuilt, but without customers you do not have an enterprise.

Your goal in managing your customer relationships is to increase customer loyalty. Think of it as a scale

Not loyal at all ------------> Intensely loyal

What you want to do is move your customers as far as you can from the left end of the spectrum over to the right end.

One of the ways you can do this is through the creation of customer communities.

These are deliberately designed communities of your customers that create a social aspect to your business, and raises the loyalty.

For example if you sold cereal you could create a breakfast club where parents and children could meet up and play games along with sampling the lastest creations from Kellogs.

This is one of many ways you can apply communities to your brand.

What Affects Customer Loyalty?

The more loyal your customers are to your company, the easier it is for you to maintain a profit. What we have found is there are several common factors which strongly relate to customer loyalty:

Commitment - Your client wants to know that you are putting them first. That your not going to lie, cheat, or manipulate them to get their money. The best way to serve your customers is to put their needs ahead of your own (so long as it does not become a cost center).

When you do what is best for your customer instead of only what is best for the company, you gain intense loyalty and ultimately win in the marketplace. We see this right now with Google who is putting its customer experience ahead of its own advertising profits.

Response - Every company is going to run into problems. Eventually in your customer relationship, your company is going to make an error. What matters is how does your company respond and handle this error.

You can turn a negative customer experience into a way of strengthening your brand by demonstrating how effectively your company deals with customer problems and complaints. Demonstrate outstanding service to your customers.

Consistency - You want to be consistent in your product, service and in your brand positioning. If you recall an earlier post where we talked about McDonalds.

When you go to McDonalds you know exactly what the food will taste like, what the service will be like, how much it will cost, etc. McDonalds may not be winning any awards for culinary excellence but they are extremely consistent at delivering what they promise. This is one of the reasons for their dominance in the fast food industry.

Branding Part 3 of 3: Image

This is our third part in the three part series on branding. In this final series we are going to talk about brand image.

What is a brand image? It is the impression about your brand that a customer has which is created by brand messages and experiences.

Customers impression of your company = brand messages + experiences

What you want to do is deliberately create a favorable impression on your prospective customers and manage that impression for higher profits.

Next, we are going to discuss multi-tier branding: This is where you create a brand and several sub-brands to further strengthen you position in the marketplace.

For example if you have a online publishing company, you can brand the company as X. Then lets say you have a series of products about golfing you release, you can brand all of these products as Y. Further you can brand each individual product as their own individual brand.

This helps to build brand strength. We see examples of this with Apple. We have Apple, IPad, IPhone, IPod, etc.

This use of multi-tier branding helps to differentiate your products in the marketplace. Furthermore it acts as a way of strengthening your brand as each product adds to the brand value of all the other products.

Its important to always remember that a successful brand is really a relationship between a customer and a company.

What you want to focus on is building long term trust. Simply going after the sale can weaken your company in the long run. If you manipulate or decieve your customers, you are going to lose your customers.

Furthermore they will tell other people negative stories about your brand. Finally you will eventually lose market share to companies who think long-term. If one company is just going after the sale, they may initially have higher profits.

However when you look at the lifetime customer value the company who develops trust has a much lower customer acquisition cost and makes more money off each customer.

So not only does it cost less for a company who develops trust to acquire a new customer, but they also make far more money off each customer they acquire.

This is a deadly combination in any marketplace that allows long term brands to stomp companies who only think short term.

Branding Part 2 of 3: Identification

This is the second of the three part series on branding.

You now need to choose a name for your brand. Your choice of a brand name must reflect the position you want your brand to take. Several important keys to remember when developing your brand name and logo are:

• Strive for a Brand name which is easy to remember, and a brand logo that is very distinct.
• Try using customer surveys and focus groups to get feedback on your ideas for brand logos and names

In addition here are some key elements you may want to communicate in your brand name:

• Benefits - Incorporating a benefit directly into your brand name
• Unique - Picking something completely off-the-wall that is very distinct from your competitors (example Amazon for the name of an online bookstore)
• Association - Choose names that represent ideas you want associated with your brand
• Simple - Names that are very simple and easy to remember, short and easy to pronounce

 

Branding Part 1 of 3: Positioning

This post is part of a 3 part series about developing a new brand. The first step is whats called positioning.

Positioning is how you position your companys brand relative to the other competitors in your marketplace.

Your customers compare your brand to other brands, and its up to you to strategically determine how you will position your brand for the best evaluation by your customers.

The ideal position is one which can be delivered by the product or service and is highly appealing to your core audience.

There are several approaches you can take when determining a position:

Image

With this approach you want to create associations with your product. You create a differentiating image for your company. 

Category

This type of positioning is where you base it off of generic features which all competitors share but have not talked about in their advertising. This is particularly useful in industries where competitors sell commodity type products. 

Benefit

This is where you emphasize the benefits your customer will enjoy as a result of using your products. We define benefits as, something that fulfills a need or desire, that your customer has. 

Unique Product Approach

This is where you take features of your product and use it to differentiate yourself in your market. For example Apple provides highly functional and beautiful technology that is innovative and easy to use. Facebook offers a different social experience than MySpace.

Fulfilling Customer Expectations

One of the powerful aspects of relationship marketing and branding is that it sets customer expectations. You know exactly what to expect when you enter into a McDonalds.

You know what the food will taste like, what you can buy, approximately how much it will cost, what the service will be like, etc. It is this consistency which makes McDonalds such a powerful force in the fast food industry.

Your customers have certain sets of expectations based off what your brand stands for, what it communicates and past experiences.

It is important that your company is consistent with your brand message. You need to maintain the same brand promise overtime and deliver upon it to develop a brand.

When delivering a brand promise, it is important that it is one you can actually deliver to your customers. Offering unrealistic or false brand promises weakens your brand and can lose you customers very fast.

If you have to choose, its better to set customer expectations low and impress them with outstanding value than it is to set customer expectations high and disappoint them.