Using the Wallet Allocation Rule
The Rule in Practice
The Rule in Practice
The new rule has important implications or
The new rule has important implications or
strategy. To understand what drives changes
strategy. To understand what drives changes
in share o wallet, managers need to shit
in share o wallet, managers need to shit
their ocus rom drivers o satisaction to
their ocus rom drivers o satisaction to
drivers o rank.
drivers o rank.
First, you can’t assess brand perormance as
First, you can’t assess brand perormance as i i
it existed in a vacuum. That sounds obvious,
it existed in a vacuum. That sounds obvious,
but in
but in reality it’s exactly what most reality it’s exactly what most managersmanagers
do, measuring customer satisaction or using
do, measuring customer satisaction or using
other metrics that are based on customers’
other metrics that are based on customers’
perceptions o their brand alone. As a result,
perceptions o their brand alone. As a result,
the loyalty objectives used to evaluate and
the loyalty objectives used to evaluate and
compensate managers usually have to do with
compensate managers usually have to do with
achieving a certain satisaction rating (which
achieving a certain satisaction rating (which
rarely boosts share o wallet), not
rarely boosts share o wallet), not with improvwith improv
ing a brand’s rank (which
ing a brand’s rank (which actually does).actually does).
Second, the rule makes it possible to crat
Second, the rule makes it possible to crat
strategies that directly aect brand per
strategies that directly aect brand per
ormance and then measure the impact on
ormance and then measure the impact on
share o wallet. Think about how a company
share o wallet. Think about how a company
typically tries to improve share o wallet. The
typically tries to improve share o wallet. The
eort oten boils down to launching initia
eort oten boils down to launching initia
tives intended to make customers happier
tives intended to make customers happier
and then measuring satisaction. As Walmart
and then measuring satisaction. As Walmart
discovered, even initiatives that result in hap
discovered, even initiatives that result in hap
pier customers may have little or no positive
pier customers may have little or no positive
impact on the top line. Instead, companies
impact on the top line. Instead, companies
should understand exactly why their custom
should understand exactly why their custom
ers use each o the brands they do. I you’re
ers use each o the brands they do. I you’re
not number one, you should ask your custom
not number one, you should ask your custom
ers why they preer your competitor and use
ers why they preer your competitor and use
the insights you gain to move up the ranking
the insights you gain to move up the ranking
ladder. The Wallet Allocation Rule is clear on
ladder. The Wallet Allocation Rule is clear on
this point: i you can’t improve your rank, you
this point: i you can’t improve your rank, you
can’t improve your share o wallet. (See “How
can’t improve your share o wallet. (See “How
to Improve Your Rank.”)
to Improve Your Rank.”)
How to Improve Your Rank
How to Improve Your Rank
Let’s look at a composite case, drawn rom our
Let’s look at a composite case, drawn rom our
research, that illustrates how a ullservice
research, that illustrates how a ullservice
grocery retailer might put the rule to use.
grocery retailer might put the rule to use.
The grocer surveys its customers and nds
The grocer surveys its customers and nds
that they are generally very happy with their
that they are generally very happy with their
experience—53% give the store a nine or ten
experience—53% give the store a nine or ten
on a 0to10point “would recommend” scale.
on a 0to10point “would recommend” scale.
However, despite these good scores, only 43%
However, despite these good scores, only 43%
o customers rank the grocer as their rst
o customers rank the grocer as their rst
choice. The unpleasant implication is that
choice. The unpleasant implication is that
57% either preer one or more o its competi
57% either preer one or more o its competi
tors or consider the grocer to be tied with one
tors or consider the grocer to be tied with one
o them. Using the Wallet Allocation Rule, the
o them. Using the Wallet Allocation Rule, the
grocer calculates its average share o wallet
grocer calculates its average share o wallet
and that o its three main competitors. Multi
and that o its three main competitors. Multi
plying these estimates by its customers’ aver
plying these estimates by its customers’ aver
age monthly grocery spend and the number
age monthly grocery spend and the number
o its customers who also patronize the com
o its customers who also patronize the com
peting stores, the grocer determines that its
peting stores, the grocer determines that its
top three competitors are extracting a total
top three competitors are extracting a total
o $425 million rom its customers’ wallets—
o $425 million rom its customers’ wallets—
some o which it could capture by moving up
some o which it could capture by moving up
in the ranks.
in the ranks.
Returning to the store’s customer surveys,
Returning to the store’s customer surveys,
managers learn that the top two reasons its
managers learn that the top two reasons its
satised customers recommend the grocer
satised customers recommend the grocer
are the superior quality o its produce and the
are the superior quality o its produce and the
ambience. This is not surprising; management
ambience. This is not surprising; management
has worked hard to dierentiate the grocer
has worked hard to dierentiate the grocer onon
these parameters. What attracts the store’s
these parameters. What attracts the store’s
customers to the competition? The survey
customers to the competition? The survey
indicates that or Competitor One, the primary
indicates that or Competitor One, the primary
attraction is everyday low prices. Competi
attraction is everyday low prices. Competi
tor Two also competes on price, but largely
tor Two also competes on price, but largely
through rotating deep discounts. Competitor
its customers’ minds, it can’t simply enhance
its customers’ minds, it can’t simply enhance
what it already does well; stocking even bet
what it already does well; stocking even bet
ter produce or improving the aesthetics might
ter produce or improving the aesthetics might
urther delight customers who already rank
urther delight customers who already rank
it rst but would be unlikely to change the
it rst but would be unlikely to change the
minds o the rest, who are mainly interested
minds o the rest, who are mainly interested
in low prices and convenience.
in low prices and convenience.
The grocer can’t compete on price in every
The grocer can’t compete on price in every
category, so its managers decide to drop prices
category, so its managers decide to drop prices
on its most commonly purchased staples,
on its most commonly purchased staples,
reasoning that customers who are already
reasoning that customers who are already
attracted to the store or its produce and ambi
attracted to the store or its produce and ambi
ence will then have less reason to shop at its
ence will then have less reason to shop at its
strongest competitor, the everydaylowprice
strongest competitor, the everydaylowprice
store. Surveys ater the price change nd that
store. Surveys ater the price change nd that
49% o customers now peg the grocer as their
49% o customers now peg the grocer as their
rst choice (a gain o 6%) and that the num
rst choice (a gain o 6%) and that the num
ber
ber o o stores stores customers customers regularly regularly shop shop inin
has dropped rom 2.5 to 2, on average. These
has dropped rom 2.5 to 2, on average. These
changes, when plugged into the
changes, when plugged into the Wallet AllocaWallet Alloca
tion Rule, translate to a sevenpoint increase
tion Rule, translate to a sevenpoint increase
in share o wallet. It’s the equivalent o shit
in share o wallet. It’s the equivalent o shit
ing $62 million rom competitors’ registers
ing $62 million rom competitors’ registers
into the grocer’s own.
into the grocer’s own.
Many companies could see this kind o rev
Many companies could see this kind o rev
enue jump i they decided not to pursue
enue jump i they decided not to pursue
customer satisaction or its own sake and
customer satisaction or its own sake and
ocused instead on how satisaction and other
ocused instead on how satisaction and other
loyalty boosters could help them pull ahead
loyalty boosters could help them pull ahead
o the competition. I growth is what you’re
o the competition. I growth is what you’re
ater, stop watching your scores and start pay
ater, stop watching your scores and start pay
ing attention to your rank. The path to win
ing attention to your rank. The path to win
ning has always been the same. It’s not just
ning has always been the same. It’s not just
how many points you score th
how many points you score that matters—youat matters—you
need to score more than your competitors do.
need to score more than your competitors do.
about as i they were irreutable acts. The
about as i they were irreutable acts. The
Wallet Allocation Rule is measurable act and
Wallet Allocation Rule is measurable act and
an enormous contribution to
an enormous contribution to the eld.”the eld.”
—Ron Kauman
Faced with an eroding core business, most companies seem to do ... nothing. In the media and
Faced with an eroding core business, most companies seem to do ... nothing. In the media and
entertainment industry, look at Blockbuster’s lackluster embrace o mail delivery and video
entertainment industry, look at Blockbuster’s lackluster embrace o mail delivery and video
streaming, newspapers’ mainly tepid moves into digital publishing, and television networks’
streaming, newspapers’ mainly tepid moves into digital publishing, and television networks’
doubling down on a small number o hot shows. A company in a turbulent industry oten seems
doubling down on a small number o hot shows. A company in a turbulent industry oten seems
like a dairy armer whose herd has been reduced to just one cow; his only adaptation o his busi
like a dairy armer whose herd has been reduced to just one cow; his only adaptation o his busi
ness plan is to milk that
ness plan is to milk that heier extra hard. The storheier extra hard. The story cannot end hy cannot end happilyappily..
Barnes & Noble (B&N),
Barnes & Noble (B&N), America’s largest bookseller, is bucking these trends. While its biggest traAmerica’s largest bookseller, is bucking these trends. While its biggest tra
ditional competitor, Borders, has ended up in bankruptcy, B&N is creating a credible growth plan
ditional competitor, Borders, has ended up in bankruptcy, B&N is creating a credible growth plan
in the midst o upheaval. In the rst quarter o 2011, industrywide book sales were down 2.5%
in the midst o upheaval. In the rst quarter o 2011, industrywide book sales were down 2.5%
rom the same period in 2010. Print books are in decline but ebooks are rocketing ahead, growing
rom the same period in 2010. Print books are in decline but ebooks are rocketing ahead, growing
nearly 150% yearonyear. B&N is moving boldly into this uture in our ways that hold lessons or
nearly 150% yearonyear. B&N is moving boldly into this uture in our ways that hold lessons or
any company acing a troubled core.
any company acing a troubled core.
Competing with its legacy business:
Competing with its legacy business:Rather than swim against thRather than swim against the ebook tide, B&N has embracede ebook tide, B&N has embraced
the inevitable with its Nook readers. Other bricksandmortar booksellers have oered ebooks
the inevitable with its Nook readers. Other bricksandmortar booksellers have oered ebooks
online, and Borders licensed a reader o its own rom an outside company called Kobo. But B&N is
online, and Borders licensed a reader o its own rom an outside company called Kobo. But B&N is
the only legacy retailer to create its own devices—and rather than oer a single reader as a deen
the only legacy retailer to create its own devices—and rather than oer a single reader as a deen
sive move, it took the oense with a requently updated amily o products promoted promi
sive move, it took the oense with a requently updated amily o products promoted promi
nently instore. The company has moved so aggressively into the reader space that its ebook
nently instore. The company has moved so aggressively into the reader space that its ebook
market share has grown to 26%, and Cons
market share has grown to 26%, and Consumer Reports has rated the latest Nook as (by a haumer Reports has rated the latest Nook as (by a hairthinirthin
margin) the best reader in the industry.
margin) the best reader in the industry.
Focusing on target customers:
Focusing on target customers:The Kindles try to be versatile, toting around PDF documents romThe Kindles try to be versatile, toting around PDF documents rom
a user’s PC and allowing or easy text annotation. B&N’s Nook Color has more modest aims as a
a user’s PC and allowing or easy text annotation. B&N’s Nook Color has more modest aims as a
device ocused tightly on reading, but it is a standout in how it handles glossy magazines and
device ocused tightly on reading, but it is a standout in how it handles glossy magazines and
children’
children’s books. In s books. In its unctionality, design, and marketing, the device its unctionality, design, and marketing, the device aims squarely or aims squarely or womenwomen
who love to read. The more basic
who love to read. The more basic blackandwhite model has been praised or its size, weight, andblackandwhite model has been praised or its size, weight, and
ultraintuitive operation. B&N CEO
ultraintuitive operation. B&N CEO William Lynch says it’s made “or Grandma.” While Amazon isWilliam Lynch says it’s made “or Grandma.” While Amazon is