Share of Wallet and Conversion: Two More Measures Shopper Insights Managers Need to Know
In a previous post, we talked about the three drivers of category growth and their similarities with the Fourt-Woodlock equation. The factors of shoppers, basket size, and trip frequency are important, but they are not the only important measures for shopper insights managers. There are two additional panel facts that are highly valuable to shopper insights managers and retailers. These are Share of Wallet (SOW) and Conversion.
Understanding Share of Wallet:
Share of Wallet is different from dollar share. Dollar share is calculated as a retailer’s share of all dollars spent by all shoppers at all retailers. Share of Wallet is a more narrow view. Share of Wallet looks at only at a particular retailer’s shoppers and where they spend their money. It can be a powerful measure for helping retailers identify their true competition.
For example, Kroger shoppers also make trips to Meijer and Walmart and Costco. Even with 84.51 and strong loyalty, Kroger shoppers do not spend 100% of their money at Kroger. Therefore, by understanding Share of Wallet, Kroger can understand which retailers their shoppers spend the most at outside of Kroger. This can be expressed in terms of total dollars (largest size of prize) and as ratio of fair share (over-development). This is typically most valuable to retailers at a category level since it helps them understand their destination categories as well as where they are “leaking” dollars and to whom.
Conversion is a panel metric that looks at where shoppers buy a particular category. It measures the percentage of shoppers who buy a category anywhere, who shop at a particular retailer, and buy the category at that retailer. That’s a lot to digest. Let’s break it down.
Ken buys organic bananas. Ken does most of his grocery shopping at Hy-Vee. However, Ken buys his organic bananas at Whole Foods. He would not be counted in Hy-Vee’s conversion number for the organic bananas category.
Let’s take that example further and add real numbers. Let’s pretend that most of Hy-Vee’s organic banana shoppers are like Ken. 56% of them come to Hy-Vee for their groceries but never buy organic bananas there. That means they buy their organic bananas somewhere else. Therefore, Hy-Vee would have a conversion rate of 44% on organic bananas.
Objectively, 44% is probably a pretty decent conversion rate for a regional grocer. However, it is painful for retailers to think that people are in their stores and leave without buying a product or category that they carry.
Along with Share of Wallet leakage, Conversion can be used to tell a powerful competitive story. You can diagnose which categories the retailer is having trouble converting and then analyze where those dollars are leaking. It can be the start of a very powerful funnel of analysis.
There are many valuable panel metrics for market researchers to understand. Share of Wallet and Conversion do not always get the attention that they deserve. This is because they are difficult to understand and explain. If you still need help understanding or explaining these measures after reading this article, feel free to contact us or ask for clarity in the comments below.