Size and Share of Customer Wallet

Abstract

Many companies collect substantial information about their interactions with their customers. Yet information about their customers' transactions with competing firms is often sparse or nonexistent. As a result, firms are often compelled to manage customer relationships from an inward view of their customers. However, the empirical analysis in this study indicates that (1) the volume of customers' transactions within a firm has little correlation with the volume of their transactions with the firm's competitors and (2) a small percentage of customers account for a large portion of all the external transactions, suggesting the considerable potential to increase sales if these customers can be correctly identified and incentivized to switch. Thus, the authors argue for a more outward view in customer relationship management and develop a list augmentation-based approach to augment firms' internal records with insights into their customers' relationships with competing firms, including the size of each customer's wallet and the firm's share of it.

The differing and mediating roles of trust and relationship commitment in service relationship maintenance and development

“…An increasing number of customers are switching from a monogamous status ("kept for good" customers with a single bank provider) to a polygamous status ("always a share" customers doing business with several bank providers). This phenomenon of partial defection has strong negative consequences on retail banks' margins, profits and strategies (Du et al 2007). In our study, "always a share" customers represent almost 50% of the clients of the bank (Appendix B).…”

“…Relationship duration (16 years on average, σ=8) was calculated according to the opening date of the current account. Relationship exclusivity was not observable from the company's database as banks often do not know how many providers their customers have (Du et al 2007). In the survey, we asked customers to self-report the number of banks they currently patronize in order to know if they exclusively use the services of Credit Agricole ("kept for good" customers) or if they share their spending between two, three, four, or more banks ("always a share" customers).…”

“…Yet, customers may be kept for good and maintain a unique and exclusive relationship with their provider. Or, they may develop multiple relationships with companies and share their spending among different suppliers (Bowman and Narayandas 2001;Cooil et al 2007;Du et al 2007). To estimate a company's ability to retain its current customers, we propose to simultaneously consider two complementary facets: 1) the duration of the exchange relationship refers to the length of the business relationship with a specific provider; 2) the exclusivity of the exchange relationship refers to the number of providers the customer patronizes for a specific product/service category (monogamy vs. polygamy).…”

“…Although structural bonds are not the same in a consumer context, contractual or operational restraints often exist which limit the consumer's ability to leave a provider. For example, in the retail banking industry in France, USA, UK or New Zealand, the low churn rate (less than 5%) is often due to the difficulties associated with the physical transfer of existing banking arrangements (Coyles and Gokey 2002;GondatLarralde and Nier 2004;Du et al 2007;Matthews and Murray 2007). Customers must pay high fees if they want to pay off their credit before its previously defined termination date, and transfer their existing savings to other banks.…”

“…Customers use fewer existing services (level of credit and savings) and buy additional products from other banks (bonds, stocks, savings, or insurance). This results in a 24% drop in bank balances (Coyles and Gokey 2002;Littler and Melanthiou 2006;Du et al 2007). …”