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
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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.
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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
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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.
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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.
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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?
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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
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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
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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
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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
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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.