What is Share of Customer and Why is it Important?

Summary

In this video, marketing expert Jeff explains the concept of 'share of customer' and its crucial role in gaining market share. Share of customer refers to the proportion of a customer's total spending that goes to a particular brand or business. Jeff emphasizes that it's often easier to increase share of customer by focusing on existing clients than acquiring new ones. He provides examples to show how improving customer retention and increasing their spending can be more effective in growing market share than trying to win over new customers. The video highlights the strategic importance of understanding and leveraging this metric.

Takeaways

• 😀 Share of customer is the percentage of a customer's total spending within a category that is captured by a specific brand or business.
• 😀 Understanding share of customer is crucial for gaining market share, especially in markets where customers frequently switch between brands or stores.
• 😀 The formula to estimate market share is: brand penetration (the proportion of customers who buy from the brand) multiplied by share of customer (the percentage of a customer's budget spent with the brand).
• 😀 Gaining share of customer is often easier than acquiring new customers because it focuses on increasing purchases from existing customers.
• 😀 Market share can be increased by either boosting brand penetration (getting more customers) or by increasing share of customer (getting existing customers to spend more).
• 😀 A 15% market share example demonstrates that capturing 50% of available customers with a 30% share of their spending results in a 15% market share.
• 😀 For increasing market share, it can be more efficient to work on increasing the share of customer (getting current customers to spend more) than to attract brand new customers.
• 😀 Gaining new customers requires overcoming challenges like changing attitudes and breaking habits, which can be difficult and time-consuming.
• 😀 Increasing share of customer can be achieved by encouraging customers to buy more (e.g., upselling) or by increasing the frequency of purchases (e.g., encouraging more visits).
• 😀 Offering incentives, loyalty programs, and promotions can help increase the share of customer by encouraging more spending or repeat visits from existing customers.
• 😀 Share of customer plays a vital role in business strategy because it provides a straightforward pathway to increasing overall market share with lower customer acquisition costs.

Q & A

What is 'share of customer' and why is it important?

'Share of customer' refers to the percentage of a customer's total spending within a particular category that is spent on your brand or store. It is crucial because it helps businesses understand how much of a customer's budget they are capturing, which directly impacts market share and growth strategies.

How does the 'share of customer' metric differ from brand penetration?

Brand penetration measures the proportion of potential customers who purchase from a particular brand or store, whereas share of customer refers to the percentage of spending from a customer that is captured by that brand or store. Both metrics contribute to understanding a business's market share.

Can you give an example of how to calculate share of customer?

For example, if a customer spends $100 on coffee each month and $20 goes to Store A, $50 to Store B, and $30 to Store C, Store A has a 20% share of that customer, Store B has a 50% share, and Store C has a 30% share.

Why is it easier to increase share of customer than to acquire new customers?

Increasing share of customer is easier because you are working with existing customers who already have a relationship with your brand. You can use strategies like loyalty programs, promotions, and incentives to increase their spending. On the other hand, acquiring new customers requires attracting people who may not know your brand or may be loyal to competitors.

What is the role of 'brand penetration' in calculating market share?

Brand penetration helps estimate the percentage of customers who buy from your store or brand. It is multiplied by share of customer to calculate your overall market share, providing insights into how well your brand is reaching potential customers.

How do market share and share of customer relate to each other?

Market share is the total percentage of the market that a brand captures, while share of customer measures how much of a customer’s budget is spent on that brand. To increase market share, businesses can either increase their brand penetration or work on increasing their share of customer.

What challenges come with increasing brand penetration?

Increasing brand penetration requires attracting new customers who may have never interacted with your brand before. This can be challenging due to competition, customer perceptions, and habits. It often requires significant marketing efforts to change attitudes and encourage new behaviors.

How can a business increase share of customer?

A business can increase share of customer by offering additional products or services, running loyalty programs, creating special promotions, or encouraging more frequent visits. The goal is to increase the proportion of a customer’s total spend that goes to your brand.

Why is 'share of customer' particularly important in markets where people can easily switch brands?

In markets with high brand switching, such as coffee shops, restaurants, or supermarkets, customers often distribute their spending across multiple brands. Understanding share of customer allows businesses to focus on retaining existing customers and increasing their spend, which can be more cost-effective than acquiring entirely new customers.

What are some strategies to increase market share from 15% to 20%?

To increase market share from 15% to 20%, a business can either increase brand penetration (getting more customers to choose your brand) or increase share of customer (getting existing customers to spend more). The easier option is usually to increase share of customer, as it involves working with existing relationships rather than attracting new customers.