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Customer Share-of-Wallet and Customer Loyalty
Increases in customer loyalty will parallel increases in customers' share-of-wallet. But it is wrong to presume that share-of-wallet increases are driven by increases in customer loyalty. A number of issues affect customers' spending allocation.

You can download excellent powerpoint slides on Marketing Strategy and Marketing Management HERE. Increased loyalty is not typically the reason for increased share-of-spending; price is. Managers can increase customers' share-of-spending by dropping their price. Brand managers are universally aware of the effect of price promotions on sales: typically, large spikes in sales volume. Customers typically load up on the discounted brand, in effect warehousing the product for future use.

As a result, share-of-wallet does increase, but the emotional aspects of loyalty have been damaged. Customers are taught that their preferred brands are worth less than they imagined they were. Sales levels in the future, at the original price, will be harder to maintain.

LOYALTY MYTH 4: Spending on Customer Service Increases Customer Loyalty
Not necessarily. Spending on customer service can mean many different things. Often spending to improve service quality results in no appreciable benefit. Before any spending is committed on service quality in an effort to enhance customer loyalty, the relationship between the proposed enhancement and customer loyalty must be established. Then the projected financial impact of the effort should be calculated. If the effort is not likely to produce a positive return on investment, then it probably is not significantly enhancing customer loyalty. Additionally, for many customer segments, spending to improve customer service will have no impact on customer loyalty. Some customers are driven by price, location, or other factors.

For many business categories, service is not the driver of customer loyalty—product function is. Think of the loyal Coca-Cola customer. Loyal Coke drinkers may associate many positive emotional experiences with the brand, though they seldom relate to the service experience they receive from the Coca-Cola company. Still, it would be difficult to argue that the brand does not have an extremely loyal customer base.

LOYALTY MYTH 5: Loyal Customers Are Less Price Sensitive
One of the proposed virtues of customer loyalty is that loyal customers will often pay a premium to continue to do business with you rather than switch to a competitor with whom they are neither familiar nor comfortable. There are probably limited examples where this is true, but certainly not "often," unless liberally tempered with the qualifier, "a competitor with whom they are neither familiar nor comfortable." Loyal customers tend to be more price sensitive. Although they might not switch to an unfamiliar or uncomfortable competitor, it is unlikely that a category would lack a competitor with whom customers were familiar and comfortable given the proclivity of brand polygamy we have previously discussed. Most customers have some¬where else to go.

In their research, Reinartz and Kumar did not find that loyal customers were paying a higher price from a preferred supplier for the same bundle of goods offered elsewhere for less. In one business-to-business example, they found that long-term customers consistently paid 5 percent and 7 percent less than did new customers. The same thing applies to retail customers as well. An article in the Washington Post noted, "In a subtle shift of marketing tactics, some retailers have stepped up coupon offers directed at their most loyal customers in a bid to attract repeat visits from big spenders. . . . Eager to wean themselves from discounts for the masses, retailers hope more targeted coupons will limit big bargains to a pool of their best customers." In other words, loyal customers may often pay lower prices, but are unlikely to pay higher prices.

Source :
Timothy L. Keiningham, Terry G. Vavra, Lerzan Aksoy and Henri Wallard, Loyalty Myths: Hyped Strategies That Will Put You Out of Businessand Proven Tactics That Really Work, . You can find this excellent book here