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You know the drill: Provide a great customer experience. Make customers happy. Build loyalty. Get more wallet share. Grow your market share.

Customer experience professionals have been following this model for quite some time now, but the authors of a new book are here to tell you some surprising news.

“It’s absolutely false. There are assumptions to this model that are not only slightly wrong, but are completely wrong.”

This is what Tim Keiningham, co-author of The Wallet Allocation Rule: Winning the Battle for Share, told CMSWire as we chatted with him about the findings in the book.

The Problem

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According to Keiningham, who is also Global Chief Strategy Officer for Ipsos Loyalty, the fundamental flaw with relying solely on Net Promoter Score (NPS) or customer satisfaction to drive loyalty and wallet share is that, quite simply, these metrics don’t link to share of spending.

“The strength of the relationship between NPS or customer satisfaction and share of spending is so incredibly weak that it’s managerially not relevant,” he said. “There is no payback with customer behavior.”

Keiningham also noted that, in order to gain market share, managers would actually need to accept lower satisfaction levels by appealing to a larger, more diverse customer base. This explains why niche brands have such high satisfaction rates, he added.

“There is an obvious problem with how we currently measure and manage customer loyalty,” he said.

Competition: The Missing Link

Rather than throw out the NPS and customer satisfaction metrics, Keiningham and his co-authors have come up with a simple, scientifically-based formula that businesses can use to find out what kind of financial outcomes are tied to their customer experience efforts.

Named the Wallet Allocation Rule, and backed by science published in the Harvard Business Review, MIT Sloan Management Review, and other journals, this formula takes into account what today’s model doesn’t: the competition.

“Your best customers are more likely to divide spending among your competitors,” said Keiningham. “Your best customer is also your competitor’s.”

The Wallet Allocation Rule forces marketers to shift from focusing on NPS or customer satisfaction score to the ranking of those scores in relation to your competitors.

So, basically, companies will not only score themselves, but score their competition, as well, in addition to gathering information about why customers use competitors.

“Findings show that it is possible to predict share of wallet with a high degree of accuracy by simply knowing the rank and the number of brands used by the customer,” said Keiningham.

He added that understanding customer reasons for using competitors also gives you insight into how to outsmart those competitors by changing your services for the better.

Getting Better Metrics

To help managers get started on their way to showing true ROI from customer experience efforts, Keiningham and his co-authors are offering a free Quick Start Guide explaining the basics of the Wallet Allocation rule.

“We want everyone to be able to win,” he said. “If customers aren’t winning with the customer experience, it’s a fad and it will disappear.”

Keiningham concluded by reiterating that the disconnect between customer satisfaction and ROI is a matter of focus.

The problem is that you can make people really happy and still not make more money. You have to be very careful that the things you’re focusing on are causing customers to give you more business. What you’re doing is minimizing the customer need to go to the competition.”

Creative Commons Creative Commons Attribution 2.0 Generic License Title image by familymwr.