This module covers the concepts of unit market share revenue market share market penetration relative market share and market concentration Authors Paul Farris and Stu James Marketing Metrics Reference Chapter 2 ID: 259155
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Market
Share Metrics IThis module covers the concepts of unit market share, revenue market share, market penetration, relative market share, and market concentration.
Authors: Paul Farris and Stu JamesMarketing Metrics Reference: Chapter 2© 2011-2017 Paul Farris, Stu James, and Management by the Numbers, Inc.Slide2
Before discussing market share, let’s discuss the non-trivial issue of market definition. A good first step is to define the served market in terms of dimensions such as geography, demographic, channel, time periods, etc.
Examples:Brazilian drivers aged 20-39 in 2010Purchasers of cold medicine at grocery stores in MayTourists visiting Paris in the Spring who plan to visit a museum
Market Share2What is a Market?MBTN | Management by the Numbers
Insight
To illustrate why market definition is essential, consider the difference between the definition of tourists visiting Paris who plan to visit a museum and tourists just visiting Paris. In effect, are we competing against museums or any potential tourist activity?Slide3
Market Share3
What is a Market?
MBTN | Management by the NumbersMarket definition with regard to market share can be applied in many different contexts – goods, services, segments, regions, channels, units, dollars, etc. What is essential to remember is that when calculating market share, one must compare apples with apples. Otherwise it is at best meaningless, or more likely, misleading and dangerous.With that in mind, let’s turn to market share – why it is one of the most important metrics in business and how to calculate it.Slide4
Market Share is one of the fundamental measures used in marketing. It measures the sales of a brand or product relative to the overall size of a market.
Market Share may be calculated using units or revenues, and both measures may have important implications for a company. Note that the difference between the two measures is price, as Revenues = Units Sold x Price.Market Share
DefinitionUnit Market Share = Unit Sales / Total Market Unit Sales4Market ShareMBTN | Management by the Numbers
Definition
Revenue Market Share =
Sales Revenue / Total Market Sales RevenueSlide5
Market Share is an indicator of how a brand is doing relative to the competition. It includes not only a customer’s assessment of a brand’s value proposition, but also other factors that influence sales such as advertising and distribution.
Unit sales relative to competition also may have an impact on unit costs if higher volumes of production lead to lower production costs. This may provide a competitive advantage to a company.Why is Market Share Important?
5Why is Market Share Important?MBTN | Management by the NumbersInsightIf a company has a higher revenue market share than unit market share it means they have a higher price relative to the competition.Slide6
Consider the following email (spam) headline:
Investor Alert!! Sales of Pear Desktop Computers increased from 8 million units to 10 million units in the past quarter, a 20% increase. Buy Pear Stock Now!The rest of the story…- Pear dropped their prices by 25%- It was 4th
quarter that included year end and Christmas sales, total market sales increased from 100 million units to 200 million units- HAL computers increased from 4 million to 20 millionNet results:- Pear revenues declined 6.25%- Pear Market share decreased from 10% to 5%- HAL computers increased market share from 4% to 10%
Why Unit Sales
are
not Enough
6
Why Unit Sales are not Enough
MBTN | Management by the NumbersSlide7
It is important to note that market share calculations only consider actual sales, not potential customers who ultimately decided against purchasing. This introduces the concept of market penetration which considers the total population of a market.
Low rates of market penetration may indicate unmet potential demand for products or low interest in the product category as a whole within the selected population.Market Share and Market Penetration7
Market Share and Market PenetrationMBTN | Management by the NumbersDefinitionMarket Penetration =
Customers who purchased a product in the category
Total populationSlide8
Relative Market Share8
Relative Market Share
MBTN | Management by the Numbers Definition Relative Market Share = Note that this is equivalent to Brand Sales / Largest Competitor Sales Brand’s Market Share ($ or Units)Largest Competitor’s Market Share ($ or Units)
Relative market share indexes a firm’s or brand’s market share against its leading competitor. This provides managers with a measure to compare the relative market positions of their brands across markets.
Insight
In some markets 20% market share might be a leading market position. In others it might be a distant #2 or even #3. Relative market share provides this additional dimension of analysis.Slide9
Relative Market Share9
Relative Market Share and the BCG Matrix
MBTN | Management by the NumbersThe relative market share metric was further popularized in the 1960s by the Boston Consulting Group in its famous growth – share matrix, where relative market share is a surrogate for competitive strength.Author: Ericmelse. From Wikipedia Commons.The other axis, market growth rate, is a surrogate for market attractiveness and potential. While there are many issues with the use of the BCG Matrix, it remains a popular visual representation of a firm’s brands, partially because of its simplicity.Slide10
Relative Market Share (Alternative Definition)
10Relative Market Share (Alternative Definition)
MBTN | Management by the NumbersNote that sometimes relative market share will be calculated as an index value from 0 to 1, where 0 is a brand with no sales in the market and 1 is the brand with the highest market share. This is the same as the previous definition except for the leading brand. For example, if Brand A has 50% market share and Brand B has 25% market share. Brand A’s relative market share will be 2.0 using the first definition, but only 1.0 using the second definition.InsightIn case you’re curious about why marketers would define relative market share in this way, it is sometimes thought to give insight into the relative cost and pricing power of a brand. If your relative share is very small, your costs might be higher and your pricing power with customers, lower.Slide11
Market concentration is the degree to which a relatively small number of firms accounts for a large proportion of the market.
Market ConcentrationDefinition
3 or 4 Firm Concentration Ratio = Sum of the market shares of the leading 3 or 4 competitors in a market11Market ConcentrationMBTN | Management by the Numbers
Question:
Which graphic represents the more highly concentrated market based on three firm concentration ratio?
Answer:
The bottom graphic. It represents a concentration ratio of 100% and the top graphic is less (approx. 60%)Slide12
Market Share Sample Problem12
Market Share: Sample Problem Set
MBTN | Management by the NumbersA high growth market in Eastern Europe has the following five brands competing in two regions (yearly sales).TotalUnits
Units
Revenues
(South)
(West)
Alfa
€ 9,000
200
250
Boffo
€ 15,000
100
200
Cafav
€ 6,000
150
0
Defy
€ 6,000
200
200
Efizz
€ 14,000
350
350
Total
€ 50,000
1000
1000
Questions:
What is Alpha’s unit market share in the West ?
What is
Defy’s
revenue market share?
What is
Efizz’s
combined unit market share?
What is Alpha’s price?Slide13
Market Share Sample Problem13
Market Share: Sample Problem Set
MBTN | Management by the NumbersTotalUnitsUnits
Revenues
(South)
(West)
Alfa
€ 9,000
200
250
Boffo
€ 15,000
100
200
Cafav
€ 6,000
150
0
Defy
€ 6,000
200
200
Efizz
€ 14,000
350
350
Total
€ 50,000
1000
1000
Answers:
Alpha’s unit share in West = 250 / 1000 = 25%
Defy’s
revenue market share = 6000 / 50000 = 12%
Efizz’s
combined unit market share = (350 + 350) / 2000 = 35%
Alpha’s price = 9000 / (200 + 250) = 20Slide14
Market Share Sample Problem14
Market Share: Sample Problem Set
MBTN | Management by the NumbersA high growth market in Eastern Europe has the following five brands competing in two regions (yearly sales). TotalUnits
Units
Revenues
(South)
(West)
Alfa
€ 9,000
200
250
Boffo
€ 15,000
100
200
Cafav
€ 6,000
150
0
Defy
€ 6,000
200
200
Efizz
€ 14,000
350
350
Total
€ 50,000
1000
1000
Questions:
What is
Cafav’s
relative market share (units)?
What is
Boffo’s
relative market share (revenues)?
What is the 3 firm market concentration in the south?
What is the 4 firm concentration ratio (revenues)?Slide15
Market Share Sample Problem15
Market Share: Sample Problem Set
MBTN | Management by the NumbersTotalUnitsUnits
Revenues
(South)
(West)
Alfa
€ 9,000
200
250
Boffo
€ 15,000
100
200
Cafav
€ 6,000
150
0
Defy
€ 6,000
200
200
Efizz
€ 14,000
350
350
Total
€ 50,000
1000
1000
Answers:
Cafav’s
relative market share (units)
= 7.5% / 35% = .214
Boffo’s
relative share (revenues)
= 30% / 28% = 1.07
(Note: or 1.00 using alternative measure of RMS)
3 firm market concentration in south
= 35%+20%+20% = 75%
4 firm concentration (revenues)
= 30%+28%+18%+12% = 88%Slide16
Market Share Sample Problem16
Market Share: Sample Problem Set
MBTN | Management by the NumbersA high growth market in Eastern Europe has the following five brands competing in two regions (yearly sales). TotalUnits
Units
Revenues
(South)
(West)
Alfa
€ 9,000
200
250
Boffo
€ 15,000
100
200
Cafav
€ 6,000
150
0
Defy
€ 6,000
200
200
Efizz
€ 14,000
350
350
Total
€ 50,000
1000
1000
Questions:
If the potential market in the South is 2000 customers and the potential market in the West is 5000 customers, what are the respective market penetration rates for this product category (presume 1 purchase / customer).Slide17
Market Share Sample Problem17
Market Share: Sample Problem Set
MBTN | Management by the NumbersTotalUnitsUnits
Revenues
(South)
(West)
Alfa
€ 9,000
200
250
Boffo
€ 15,000
100
200
Cafav
€ 6,000
150
0
Defy
€ 6,000
200
200
Efizz
€ 14,000
350
350
Total
€ 50,000
1000
1000
Answers:
Market penetration in South
= 1000 / 2000 = 50%
Market penetration in West
= 1000 / 5000 = 20%
Overall market penetration = 2000 / 7000 = 28.6%Slide18
Marketing Metrics by Farris,
Bendle, Pfeifer and Reibstein, 2nd edition, pages 32-43.
- And -Market Share Metrics II (advanced MBTN module). This module provides further insight into the decomposition of market share and metrics that are essential to understanding what circumstances led to a particular level of market share.Market Share – Further Reference18Market Share - Further Reference
MBTN | Management by the Numbers