Share of Customer: Why It Matters More Than Market Share

(Last Updated On: 9 December 2018)

In this article, you’re going to learn how to increase your gross margin.

Let me tell you two things:

(1) Why focusing on share of customer is actually better than increasing market share.

(2) What techniques you can use to boost your customer share.

(All of this illustrated with real-life examples.)

Marketing has changed

We’re in an era of hypercompetition.

Everyone competes for people’s attention and money.

In the 70s, Al Ries and Jack Trout were already talking about this in Positioning:

“Today’s marketplace is no longer responsive to the strategies that worked in the past. There are just too many products, too many companies, and too much marketing noise.”

The internet, smartphones, social media… They’re making this even worse.

Here’s the bottom line:

Your marketing strategy needs to take into account people’s limited attention. The best way to achieve that is to focus on the people who are already paying attention.

The first sale is the hardest

When you want to sell a product to new prospects, your most difficult task is to win their trust. Your prospects need to trust you before buying from you. They must believe your story.

(Here‘s a good framework to improve your marketing storytelling.)

So once you made the first sale, your done with the hardest part your job.

From now on, the following sales will cost you less. Your customers have demonstrated real interest in what you have to offer. They now have less reasons to hesitate.

Why? Because your customer believes in you. You have sold him something; it has proved to be all you claim for it; therefore he feels safe in trusting anything you may say to him in the future.

— Robert Collier, copywriter and author of The Robert Collier Letter Book

By making a first sale, you should have won your customers’ confidence with a product or service that has done all you promised for it—and more. Then, keep being trustworthy and honest.

You cannot afford ruining that trust by trying to squeeze them with the following sales…

Building relationships with your customers requires them to trust you. If you always deliver what you promise and more, they’ll keep doing business with you.

Customer Share vs Market Share

There’s a big difference between customer share and market share:

Market-share strategy = Trying to get a little bit from a lot of customers

Customer-share strategy = Focusing on getting as much as possible from fewer customers

It is cheaper to retain existing customers.

(Which means higher gross margins.)

Knowing that, it’s wiser to focus on encouraging your customers to be more loyal. Trying to get a larger share of the market will cost you more and make you lose an unfair advantage: existing customers who have already made the decision that it was worth buying from you.

Bonus:

Your most loyal customers tend to be your greatest salespeople.

Increase the share of wallet

Share of wallet refers to the amount of the customer’s total spending within a category that your business captures in the products and services that it offers.

Share of Wallet = Amount Spent on Your Products / Total Amount Spent on Category

Adopting the right strategy requires you to make choices.

Do you want to invest in acquiring more customers or in making sure that your existing customers keep buying more from you?

Now, I’m going to share great examples of the customer-share strategy.

Following the success of this article, I published The Value Mix. This new book helps you create successful propositions by leveraging the concept of customer share and 7 complementary frameworks.

Get the book here.

Consistency: Fans of your products

What it is:

Consistency is about always showing up in a predictable way. That’s one of the key drivers of retention. Once they took the risk to try it out once, your customers want to be able to anticipate what will be the experience of coming back.

How it works:

GoudronBlanc, a sustainable fashion brand I founded in 2012, offers high-quality T-shirts for men made using organic cotton.

We do one thing very well: great T-shirts.

This is our focus. It’s niche. But our customers love us for that. And they keep buying from us.

The brand doesn’t have an aggressive acquisition strategy. Instead, we focus on delivering the best to our existing customers. Since they are happy with what we do, they keep coming back to us.

But that’s not it!

What’s great is that they encourage their friends to have a look at our online shop. I am very proud of this, as it makes me happy to hear they’re happy about our work.

This strategy is a great example of being laser-focused on consistency to increase customer share.

Membership: A way to keep your customer hooked

What it is:

Membership is the state of belonging to a group of people that have access to special benefits. It’s about rewarding members—i.e. your most loyal customers—with special offers others—non-members—cannot have.

How it works:

One of Amazon’s biggest win as a retailer is the Amazon Prime membership.

According to a study by Consumer Intelligence Research Partners, Prime members shop more than non-members:

Prime members spend an average of $1,400 per year vs. $600 for non-Prime customers
Prime members shop on Amazon 26 times per year vs. 14 times for non-Prime customers

By giving access to free delivery and unlimited video and music streaming, Amazon rewards its most loyal customers.

And the customers who subscribe to Amazon Prime?

They love it! So every time they want to buy something, they think “Amazon!”.

Rewarding the most engaged group of customers matters.

Prime membership is not about getting more market share. It’s about getting a bigger share of customer.

Upselling: Make additional features more attractive

What it is:

Upselling is about encouraging your customers to purchase a comparable higher-end product than the one they are considering buying.

How it works:

You can encourage people to boost existing features.

Apple does that very well.

When you buy a product on the online Apple store, you pick the basic version and then, you can select additional features, such as more memory.

Upsell marketing strategy by Apple
Apple makes it easy to choose more premium versions of the iPhone XS

It’s a smart way to encourage their customers to play with the specs and be tempted, for example, to quadruple the storage of their new iPhone for £150.

You can make it slightly more expensive..

Starbucks has a pricing strategy based on upselling.

A tall latte (the smallest) is £2.10, while the venti size (the biggest, which is nearly twice as big) costs only £2.60.

Starbucks upsel marketing technique
For as little as 35p, you can also add extras to your coffee (that’s upselling)

For an additional £0.50, you get twice the size.

Seems worth it right?

So when the barista asks their customers about the size, many go for the biggest, as it’s marginally not that much of a difference.

Insurance: Creating peace of mind (at a premium)

Apple is a great example of a company that does upselling very well.

When you get a new iPhone or iPad, Apple offers AppleCare+.

Offering an insurance and support package is a way to increase customer share

It’s a technique for Apple to increase their share of customer.

Every time someone gets an iPhone or iPad, they are likely to consider a two-year insurance.

Airlines do that very well too.

They sell you travel and cancellation insurances. This is a clever way to make sure that they make more profit from each customer while providing additional peace of mind.

A higher gross margin is great!

It allows them to afford spending more to acquiring new customers. So by increasing their share of customer, they get a stronger budget to increase later their market share.

A corollary of customer share: Increasing Customer Lifetime Value (LTV)

Focusing on the share of customer helps you increase retention.

If someone is happy to buy more from you, it’s likely that this customer will be more loyal.

And as, the formula shows, better retention means better Customer Lifetime Value.

Following the success of this article, I published The Value Mix. This new book helps you create successful propositions by leveraging the concept of customer share and 7 complementary frameworks.

Get the book here.

Customer share does win over market share

Instead of focusing on constantly acquiring new customers, why not spending more time and effort to delight your existing customers?

Think about making profit in the long run, even if it means losing money on an occasional product or transaction. Customer lifetime value should tell you what you can afford to do.

Amazon, Starbucks, Apple, Uber, and Netflix. They all focus on increasing their share of customer. Market share is just the byproduct of their marketing strategy, not the other way around.

You cannot go wrong when your focus is on growing in profitable ways your share of customer.

Notes about Growing Share of Customer vs. Market Share

[1] This is something customer support teams know well. The more you listen to your customers, the more you learn about what they really want. That’s the bedrock of a Minimum Viable Audience strategy.

Don Peppers and Martha Rogers, who theorized one-to-one marketing summarize it well in Managing Customer Relationships:

“The enterprise learns more about its own strengths and weaknesses from each interaction and from the customer’s feedback, and is therefore able to market, communicate, and handle some aspects of its own tactics or strategy more efficiently and effectively than was possible prior to the relationship.”