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Market Share Metrics II Market Share Metrics II

Market Share Metrics II - PowerPoint Presentation

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Market Share Metrics II - PPT Presentation

This module covers decomposition of market share share of penetration usage index share of requirements brand and category penetration brand development index BDI and category development index CDI ID: 567111

market share penetration brand share market brand penetration index households definition category numbers mbtn management usage requirements period sales

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Slide1

Market Share Metrics II

This module covers decomposition of market share, share of penetration, usage index, share of requirements, brand and category penetration, brand development index (BDI), and category development index (CDI).

Author: Paul Farris

Marketing Metrics Reference: Chapter 2

© 2010-14 Paul Farris and Management by the Numbers, Inc.Slide2

Market Share

Most business people know the common definition of market share as shown below.

Market Share

Definition

Market Share =

Brand sales /

S

ales of all brands in a

market.

This definition is context dependent. That is, one calculates market share of units or dollars, market share of a particular region or segment, market share for a particular time period, etc.

2

MBTN | Management by the Numbers

Insight

It is essential to remember that

when calculating market share, one must compare apples with

apples with regard to the market (geographic, demographic or other definition), sales definition (units or dollars), time period (particular year, month, etc.).

Otherwise it is at best meaningless, or more likely, misleading and inappropriate

.Slide3

Components of Market Share

Components of Market Share

Insight

By breaking down market share into these three components, we can measure a company’s performance in each component to better understand where to focus efforts to improve sales.

Definition

Now let’s consider an alternative definition for market share, one that breaks it down into three components

:

Share of Penetration

Usage Index

Share of Requirements

Alternative Definition of Market Share =

Share of Penetration x Usage Index x Share of Requirements3

MBTN | Management by the NumbersSlide4

Measures of Market Penetration

Let’s start by reviewing the two primary definitions of

market penetration

and then proceed to the definition of share of penetration used in the market share definition.Measures of Market Penetration

Definitions

Category Penetration

= The number of people/households who bought (at least once in the time period) any brand in the category divided by the defined population.

Brand Penetration

= The number of people/households who bought (at least once in the time period) the specific brand of interest divided by the defined population

.4

MBTN | Management by the Numbers

Insight

Selecting the appropriate time period is critical for making the metric meaningful

. Consider the difference in brand

p

enetration for a brand of shampoo calculated for a particular day vs. over a full year.Slide5

Share of Penetration

Suppose over the period of a month, 500 households bought

BigBomb

brand flea foggers. During that same month, 2,000 households bought at least one product from any brand in the flea fogger category.The Share of Penetration for

BigBomb

flea foggers would be 500 / 2000, or 25%.

Share of Penetration answers the question, “what is your brand’s share of households that purchase a brand in this product category?”

Share of Penetration

DefinitionShare of Penetration = Brand Penetration / Category

Penetration.

Or the number of households that buy your brand divided by the number of households buying any brand in the category during time period.5

MBTN | Management by the NumbersSlide6

Usage Index

Suppose over the period of a year, the average consumption of households that bought

ShowerFun

brand shampoo was 6 15oz bottles, compared to the average consumption of households that bought any brand of shampoo was 4 15 oz bottles.The Usage Index

for households buying

ShowerFun

brand shampoo would be 6 / 4, or 1.5.

This index is greater than 1.0 if the brand has a disproportionate percentage of heavy users.

Usage Index

Definition

Usage Index = Average consumption (in standard units) of households that buy your brand divided by the average consumption of households buying any brand in the category at least once during the relevant time period.

6

MBTN | Management by the NumbersSlide7

Share of Requirements

Suppose that last month, the total unit purchases for households that bought

AloeHa

brand sunscreen was 1,000,000 bottles of AloeHa. Those same households purchased 2,000,000 bottles of sunscreen in total (presume same size bottle). What is the Share of Requirements?

The

Share of Requirements

is (1,000,000 / 2,000,000), or 50%.

Answers the question, “What is your brand’s share of total purchases (or “requirements”) of households that purchased your brand?”

Share of Requirements

Definition

Share of Requirements

= Total unit (or $) purchases of the brand by households that buy the brand divided by the total unit (or $) purchases in the category by those households during the relevant time period. This amounts to market share among buying households.

7

MBTN | Management by the NumbersSlide8

Market Share: Sample Problems

Market Share: Sample Problems

Question 1:

Mr.

SugarPuff

brand cereal has a share of penetration of 20% among households in the town of

Sweetville

. The usage index of households in

Sweetville that purchase Mr. SugarPuff is 1.2. Its share of requirements is 50%.

What is the Market Share for Mr.

SugarPuff brand cereal in Sweetville?

8

MBTN | Management by the Numbers

Answer:

Market

Share

=

Share

of Penetration x

Usage Index x Share of Requirements

Market

Share = 20% x 1.2 x 50%

Market

Share = 12%Slide9

Market Share: Sample Problems

Market Share: Sample Problems

9

MBTN | Management by the Numbers

Answer:

Market Share =

Share of Penetration x Usage Index x Share of Requirements

Therefore,

Share

of Penetration =

Market Share / (Usage Index x Share of Requirements)

Share of Penetration = 6% / (0.75 x 40%) = .06 / .30

Share

of Penetration = 20

%

Question 2:

EatWheats

brand cereal has market share in

Urbanopolis

of 6%. The usage index for households in

Urbanopolis

that purchase

EatWheats

cereal is 0.75. Its share of requirements is 40%.

What is the Share of Penetration for

EatWheats

brand cereal in

Urbanopolis

?Slide10

Market Share: Sample Problems

Market Share: Sample Problems

Question 3: On average, for all brands in a particular market, what will the

Usage Index always be?2.01.5

1.0

0.5

10

MBTN | Management by the Numbers

Insight

Since usage index for a particular brand is a measure of whether those who purchased a brand are heavy users (>1.0) or light users (<1.0) , the average is by definition 1.0. Only in Lake Woebegone is everyone above average!Slide11

Brand Development Index (BDI)

For example, Doodle pencils has sales of 10 pencils

per-capita

in Missouri and 8 pencils per-capita in the U.S. as a whole.  Doodle’s BDI in Missouri is 125 % or 1.25 (10 / 8). Jamie Sharper, the salesperson for the Missouri region, says he deserves a raise of at least 10% due to his superior performance compared to the average salesperson in the U.S. 

Based on this BDI analysis,

it would seem like Jamie has a good point.

What else might we want to consider?

Brand Development Index

11

MBTN | Management by the Numbers

Definition

Brand Development Index (BDI) = Brand sales ($ or units) in a specified segment compared to sales of brand in an entire market, usually on a per-capita

(per person) basis.Slide12

Category Development Index (CDI)

For example, if there are 30 pencils per-capita sold in Missouri compared to 25 pencils per-capita in the U.S. as a whole, the pencil CDI for Missouri would be 120% or 1.2 (30 / 25).

Category Development Index

12

MBTN | Management by the Numbers

Definition

Category

Development Index (CDI)

= Category sales ($ or units) in a specified segment compared to sales of the category in the entire market, usually on a per-capita basis

.

Insight

Therefore, an improved measure of performance for the salesperson would be BDI / CDI for the region. For Doodle in Missouri, this is 125% / 120%, or approximately

104

%. Using this measure we see that the salesperson is doing better than average, but only 4% better, not 25%

better

.Slide13

Further Reference

13

Further Reference

MBTN | Management by the Numbers

Marketing Metrics by Farris,

Bendle

, Pfeifer and

Reibstein

,

2nd

edition, chapter 2.

MBTN Market Share Metrics I which introduces market share calculations, discusses market definition, as well as covering relative market share and market concentration.