Chapter 6
Making It Happen
Neither a wise man nor a brave man lies down on the tracks of history to wait for the train of the future to run over him.1
—Dwight D. Eisenhower, thirty-fourth president of the United States
If you want to make enemies, try to change something.2
—Woodrow Wilson, twenty-eighth president of the United States
Ancient Greek philosopher Heraclitus famously observed, “Nothing endures but change.”3 We would add, “But unfortunately no one wants to change.”
Companies must change to survive. Nonetheless, organizational change always meets with resistance.
As a result, change often happens because the pain of the current situation has become unbearable. For many firms, the gap between the goals of the chief executive officer (CEO) and the deliverables of the chief marketing officer (CMO), and marketing in general, has become excruciatingly painful.
This is in large part reflected in the dismal corporate life expectancies of CMOs. Although consulting firm Spencer Stuart reports that CMO tenure has steadily increased to an average of 45 months in 2012 from a low of 23.2 months in 2006,4 it is still substantially less than half the time a typical CEO spends in that role.5 For some industries, CMO tenure is far shorter—CMOs in the automotive, communications, health care, and restaurant industries averaged 32 or fewer months in their jobs.
For CMOs to thrive, marketing has to be aligned with the goals of the CEO. And the overriding goal is clear: CEOs are obsessed with the growth of their companies.
The good news is that CEOs recognize that sustainable growth can only be achieved through strong relationships with customers.6 As marketing is charged with understanding the needs and wants of customers, CMOs should be well positioned to guide their companies' growth strategies.
The bad news is that CMOs have not been able to demonstrate that their efforts have a measurable impact on the share of category spending that customers' give to their brands. As a result, CMOs have far too often not been able to show a positive return on their marketing investments.
In fairness, CMOs could rightly argue that no one could be expected to do this. No system existed that could easily and strongly link customer perceptions about the brands they use to how customers actually allocated their spending.
So although CEOs could lament the current state of marketing in their organizations, the grass wasn't greener on the other side of the fence. A new CMO was likely to fare as well as his or her predecessor.
Of course, that was before the discovery of the Wallet Allocation Rule. Those CMOs who apply the rule will know precisely how customers' divide their spending. More important, they will know what it takes to get more of it!
But that doesn't just happen. It requires a systematic approach for making the Wallet Allocation Rule a road map for driving strategic decisions designed to grow share.
Throughout this book, we have presented the case for the Wallet Allocation Rule and highlighted tools for implementing it in your organizations. Rather than end this book with a cheerleader's call to “Go, Fight, Win!” we instead want to focus on this all too important fact: Without proper execution, good ideas can and often do fail. The Wallet Allocation Rule is no exception.
Next we present the two most basic rules for properly executing the Wallet Allocation Rule. In fact, many readers will likely think they are self-evident. Unfortunately, that is probably the reason they are too often forgotten—with disastrous consequences.
Rule 1: Get the Data Right
To quote a common refrain, “Bad data are worse than no data!”7 Bad data cost companies between 10 percent and 25 percent of their revenues.8 All told, the costs to the economy from these errors are easily in the hundreds of billions of dollars, with some estimates topping $3 trillion annually!9
If bad data were a disease, it would be a plague of biblical proportions. Clearly, no one wants bad data. As a result, most firms institute procedures designed to minimize it. Even so, the fact that the problem is so widespread demonstrates just how difficult it is to ensure the quality of data. Therefore, managers must be ever vigilant in ensuring the quality of data used in their Wallet Allocation Rule analyses.
This raises the question, “What exactly are ‘bad’ data in the context of the Wallet Allocation Rule?”
Although there are many ways that data can be “bad,” the four issues that most commonly contaminate Wallet Allocation Rule analyses are as follows:
- Inputting erroneous values (i.e., the wrong values are assigned)
- Measuring the wrong people (i.e., poor sample selection)
- Measuring the wrong brands (i.e., ignoring competitors)
- Measuring the wrong things (called “model misspecification”)
Inputting Erroneous Values
Inputting erroneous values is primarily a quality control issue. This is the most basic breakdown that can happen. And it happens all the time.
Although the Wallet Allocation Rule is easy to understand, the underlying data necessary to conduct the analysis are more complex than virtually all standard satisfaction or Net Promoter Score studies. It requires tracking satisfaction for all brands your customers use in the category. Because customers vary in the brands that they use, this often means collecting satisfaction information for many different brands.
The satisfaction data then must be converted to ranks (i.e., the brand that a customer gave the highest satisfaction level is assigned a 1, the second highest a 2, and so forth). Moreover, brands receiving the same satisfaction level must be given a rank that represents the average of the ranks they would have occupied had they not been tied (e.g., two brands tied for first would each receive a rank of 1.5 (the average of 1 plus 2 making the next available rank 3).
Although this is conceptually simple, without a good system for making this transformation, it is very easy to make mistakes. And these mistakes always lead to wrong answers.
Measuring the Wrong People
The Wallet Allocation Rule is designed to look at your brand in a market context. In other words, it requires understanding how customers perceive your brand vis-à-vis competitors.
Therefore, managers need to ensure that they are collecting information from the right individuals. It is important to note that “right” can take on many different meanings in terms of who you're surveying. For example, managers may want to target particular segments of customers (e.g., high profit potential, heavy users, etc.). For this discussion, however, we are referring to gathering information from a representative sample of customers.
The first thing a manager must decide on is whether to collect a market representative sample (i.e., a sample of all customers in the category—not just your own customers), or a customer sample (i.e., a sample of customers of your brand only). Both types of samples can work, but each come with pros and cons.
A market sample provides managers with insight into the dynamics of the entire category, not just customers of your business. As such, managers can align their metrics with the market shares of their brands as well as competitors.
Given this, why would any manager choose to use a customer-only sample? In a word, cost. Conducting a Wallet Allocation Rule analysis requires collecting information for a valid sample of your brand's customers. When using a market representative sample, that typically means collecting information from a large number of people.
To see how this would be the case, suppose for a moment that you needed information from 500 of your customers to run a valid Wallet Allocation Rule analysis on your brand. If your brand had a 10 percent market share, then you could in theory need to collect data from as many as 5,000 customers (i.e., 500/0.10) to get 500 for your brand.10 Of course, the number needed is almost always significantly less than the theoretical maximum because customers use multiple brands. But even if you only needed to collect information from half as many people to reach 500 of your customers, that is still a sample of 2,500 people—of which 2,000 are not your customers!
Moreover, the cost of each participant in a market representative survey is almost always significantly higher than for a customer-only sample. That is because firms rarely have contact information for competitors' customers. Therefore, finding these customers and getting them to participate in the survey can be very expensive.
By contrast, a customer-only sample often has very little cost associated with it (particularly if the firm has e-mail contact information for its customers). Because firms know (or should know) their customers, it is much easier to identify and contact a valid sample of customers.
Therefore, managers need to decide if the benefit of a market representative sample is worth the added costs, particularly given that both market and customer-only samples will work with the Wallet Allocation Rule.
Measuring the Wrong Brands
Most managers think about their competitors. In fact, most managers have an idea about who they consider to be their “real” competitors.
Of course, that is only natural—managers tend to think about their businesses all the time. The problem is that customers don't think about competitors the same way that managers do. As a result, one of the biggest mistakes that managers can make is to ignore how customers define the competitors to a brand.
Often, managers have a bias against collecting information for some brands because their firm doesn't consider them to be direct competitors. For example, some traditional grocery retailers prefer to exclude gathering information on Walmart because it is a mass merchandise retailer despite the fact that it accounts for a huge percentage of grocery sales in the United States.
When using the Wallet Allocation Rule, ignoring customer-defined competitors is a very bad idea. The goal of any Wallet Allocation Rule analysis is to understand how and why customers divide their spending among brands in the category. It is the job of management to decide which competitors to target. But without a clear understanding of why customers use each of the brands that they do, there is no way to determine the best approach for improving the share of spending that your customers give to your brand.
Measuring the Wrong Things
By far the most common mistake that managers make when applying the Wallet Allocation Rule relates to uncovering key drivers of and market barriers to increasing share of wallet (discussed in Chapter 5). Here most problems can be classified into one of two categories: (1) not asking important questions and (2) asking too many similar questions.
If an important question is left out, there is no fixing it later in the analysis. Any key driver analysis is limited to the data included. As a result, failure to collect information on an important issue blinds managers to potential opportunities and threats.
That doesn't mean, however, that managers should simply ask lots of questions either. Too many questions has the double whammy of (1) fatiguing customers responding to the survey (thereby significantly decreasing the reliability of their answers) and (2) making it very difficult to tease out what is really going on because many questions tend to be highly correlated to one another.
The right solution to this problem is better questionnaire design. This requires really understanding those aspects of the product and service experience that meaningfully affect customers' decisions to use the brands that they do.
Unfortunately, too often surveys are prescribed by operational areas within a company that are primarily concerned with getting information on either how well they are doing or what they think they should be doing. Sometimes they are designed simply to get “we're awesome” confirmation for internal and external public relations (we refer to these as “smile surveys”).
Unfortunately, neither method lends any real insight into what it takes to get customers to allocate more of their business to your brand. This requires speaking with and really listening to customers to uncover the reasons they use the brands that they do.11
Rule 2: Set the Right Performance Standards
One of the most important takeaways from the Wallet Allocation Rule is the idea that improved performance must change customers' perceptions of the relative rank of your brand vis-à-vis competing brands. In other words, it's not enough to simply do better—you must do better than your competitors.
A big problem in effectively executing the Wallet Allocation Rule is that managers seldom understand what it really takes (in terms of benefits versus costs) to actually perform better than competitors. As a result, companies rarely identify and focus on the biggest opportunities for growth.
In their Harvard Business Review article on creating organic growth, Booz & Company consultants Favaro, Meer, and Sharma present three variables for estimating potential growth opportunities that align well with the Wallet Allocation Rule approach. We believe these should be standard in any company:12
- Headroom for growth: “The number of clients and the share of wallet the company doesn't have minus the number of clients and share of wallet it is unlikely to ever have.”
- Switchers: “The clients who could be enticed to switch to a provider with a better offering.”
- Needs-offer gap: “The difference between the benefits that would cause those clients to switch their business and the benefits their current provider offers.”
Using this approach provides managers with a view of the total opportunity. Without a grasp of the big picture, managers often choose conservative, small opportunities that generate high returns on investment (ROIs) but little real profits. Understanding the magnitude of growth opportunities helps keep managers focused on high potential initiatives.
Performance standards then need to be set based on achieving satisfaction levels that result in a shift in rank, thereby causing customers to allocate more of their spending to your brand.
Unfortunately, the current reality is that performance thresholds are almost never based on improving a brand's relative competitive position. Instead, they are most typically based on achieving some arbitrary target. Often the primary motivation for a particular target level is to ensure that it is sufficiently low so that the company reaches the threshold and management receives a bonus.13
Of course, that approach almost never results in the type of improvement necessary to make a meaningful difference in the way customers perceive your brand relative to competitors. You either answer the needs-offer gap or you don't. The key to winning has always been the same. It's not how many points you score that matters—it has to be more than your competitor.
The Next Disruption
Shortly after its discovery, the Wallet Allocation Rule received an award for “Disruptive Innovation.”14 Although the recognition has been thrilling, it means little if it does not meaningfully change the way we measure and manage the way customers perceive our brands.
Perhaps the most important contribution of the Wallet Allocation Rule is that it demands that managers move from navel-gazing customer satisfaction and Net Promoter Score surveys to holistic examinations of their brand's performance relative to competitors. Every manager knows that customers make choices based on their perceptions of the competitive landscape. For too long we've ignored that most basic truth in how we measure and manage customer satisfaction and loyalty. So in a very important way, the Wallet Allocation Rule is a testament to the fundamentals of business success.
The Wallet Allocation Rule also helps answer the increasing demand for financial accountability. By measuring opportunities through their impact on customers' share of spending with your brand, managers can gauge the financial outcomes of their investments to improve the customer experience.
Most important, the Wallet Allocation Rule is about making win-win situations. Customers win because companies provide them with what they really need. And because customers have fewer needs to use competitors, companies clearly win by gaining a higher share of their spending.
Of course, that is an old idea made new again through the application of the Wallet Allocation Rule. To quote Peter Drucker one last time, “The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.”15