Customer Satisfaction and Share of Wallet
Improving customer loyalty has evolved from an objective of managers into almost an obsession. In fact, a worldwide survey of CEOs conducted by the Conference Board in 2002 found that customer loyalty and retention was the most important challenge that business leaders believed they faced.
PHOTO: Bruce Cooil, Professor of Management (Statistics)
What does it all mean for managers?
First, suggests Cooil and his colleagues, businesses must look beyond simplistic reports on customer satisfaction levels. They will also need to understand the relationship between customers’ share of wallet to satisfaction, Cooil notes. That demands looking beyond snapshots. Since changes in the initial level of satisfaction are the crucial pieces of information, businesses will need to track satisfaction over time if they wish to design efforts that will improve how their customers allocate their share of wallet.
Moreover, Cooil says, “simply treating all customers as homogeneous has the potential to misrepresent the relationship between satisfaction and share of wallet.” Instead, they must assess the influence of satisfaction their various customer segments on the SOW they enjoy.
In the financial services industry in particular, the research showed that higher-income customers (who also represent the lion’s share of the institution’s loan and line-of-credit customers) are more responsive to both higher initial satisfaction levels and to positive changes in satisfaction. Because many if not most customers have relationships with multiple financial institutions, rather than exclusive, monogamous relationships with only one bank, changes in service levels that affect the level of customer satisfaction can more easily result in the inflow — or outflow — of money to the firm. This issue, the researchers conclude, should be of increasing concern to the banking industry. Given the “increasingly polygamous loyalty” of consumers toward brands and firms, it is also likely to transcend that industry and shape the way that businesses relate to their customers.
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Published 2/15/07 in OWENintelligence
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