Analyzing market potential: if you expect to grow market share, you first must determine the location of the most promising sources of new revenue. This means employing two measures: "share of the wallet" of existing customers and "market potential" of prospective ones.

• Author: Polk, David T.
• Position: Fundamentals: research

One frequent business goal is to increase market share. There are three logical ways to capture a greater market share: (1) Secure more business from existing customers; (2) Enter new markets; and (3) Penetrate existing markets to a greater extent.

In order to choose which actions to take, a bank must first know the market potential associated with each approach. This article focuses on ways to assess the market potential of existing customers and prospective new ones. (Note that the methods of assessing new markets call also be employed in examining the potential in existing markets.)

More business from existing customers

To increase revenue, it is more efficient to grow sales with existing customers than to obtain new ones. A bank normally spends about $350 to attract each new customer.

The idea of determining the sales potential of existing customers orignally grew out of customer satisfaction research. Having customers who are satisfied with a bank overall does not necessarily mean they are satisfied with all of the bank's offerings. A customer might be very pleased with a bank for basic products such as checking. However, customers would never consider using the bank for investment activities. This is obviously a lost opportunity for the bank.

Realizing this situation led to the incorporation of "share of the wallet" into customer satisfaction research. "Share of the wallet" research asks how much of the customers' money the bank has.

Measuring "share of the wallet" periodically in customer satisfaction studies allows a bank to assess how well it is doing in capturing more business from its existing customers. Monitoring "share of the wallet" is especially pertinent to banks that are positioning themselves as total financial institutions.

Measuring share of the wallet

"Share of the wallet" research examines three types of financial activities:

1. Deposits: checking accounts, savings accounts.

2. Loans: installment loans, credit lines, home equity loans, mortgages.

3. Investments: CDs, IRAs, mutual funds, annuities, stocks, bonds.

For each of these activities, the researchers ask these questions:

* Which is the primary financial institution?

* What specific products are being used at the bank and elsewhere?

* What percentage of dollars are at the bank?

* How satisfied is the customer with whatever institution is being used as the primary financial institution?

Primary financial institution

An initial question in a customer satisfaction survey may be "Which is your primary financial institution?" This question is asked again in the "share of the wallet" section of the survey under the categories of deposits, loans and investments. Seeing what percentage of customers considers the bank to be their primary institution overall and for each of...