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.