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Basic Questions on Market Share

Basic Questions on Market Share. Ted Mitchell. Basic Questions. Why is market share important? Should you measure share in revenues or in quantities sold? What is the average market share in your industry? What is your share of the market? What is your relative share of the market?.

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Basic Questions on Market Share

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  1. Basic Questions on Market Share Ted Mitchell

  2. Basic Questions • Why is market share important? • Should you measure share in revenues or in quantities sold? • What is the average market share in your industry? • What is your share of the market? • What is your relative share of the market?

  3. Why is market share important? • There is a strong belief that • 1) higher share will result in higher profits • 2) higher sales volumes mean higher revenues • 3) higher sales revenues mean higher profits

  4. The BCG Portfolio Model ? High Market Growth Low Low Market Share High

  5. Regression to Explain Profit ROI ROI x x x x x x x x x x x x x Market Share

  6. The Market Share Issue Divergence in Theory and BCG ROI Profit Market Share - Sales

  7. The Greatest Single Weakness of the Competitive-based Models for Choosing Price, Promotion etc. isHigher Market Share Does NOT Guarantee Higher Profit

  8. Market Share is Important • Next Basic Question is

  9. Should Market Share be measured in quantity sold or in dollars of industry revenue? • Quantity is more accurate • Revenue is more common • Everybody uses percentages!

  10. Average Industry Share • What is the difference between Industry and Market • You are selling 4,000 pairs a period and the industry as a whole is selling 20,000 pairs. There are 4 firms in the industry. (Note: when the word industry is used it invariably includes your firm.)

  11. What is the Average Share as a Percentage?You are selling 4,000 pairs per period and the industry as a whole is selling 20,000 pairs. There are 4 firms in the industry.Q = 4,000 pairsQi = 20,000 pairsN = firms in IndustryWhat is the average percentage market share? • Average Market Share = 1/N1/N = 1/4 =25%

  12. What is the Size of the Average Market Share? You are selling 4,000 pairs per period and the industry as a whole is selling 20,000 pairs. There are 4 firms in the industry.Q = 4,000 pairsQi = 20,000 pairsN = firms in IndustryWhat is the size of the average market share? • Average Market Share = Qi/NQi/N = Qi/4 = 20,000/4 = 5,000

  13. What is your share?You are selling 4,000 pairs a period and the industry as a whole is selling 20,000 pairs. There are 4 firms in the industry.Q = 4,000 pairsQi = 20,000 pairsN = firms in IndustryWhat is your Market Share? • Your Market Share = Q/Qi Q/Qi = 4000/20,000 = 20%

  14. What is your Relative Share?You are selling 4,000 pairs a period and the industry as a whole is selling 20,000 pairs. There are 4 firms in the industry.Q = 4,000 pairsQi = 20,000 pairsN = firms in IndustryWhat is your Relative Market Share? • Relative (to average) Market Share = N(Qi)/Qi = 4(4,000)/20,000 = 80%You have 80% of the average 25% share or 20% of total

  15. Which Measure of Share is Important? • Your Relative Market Share is Far more important than Your share of total market

  16. Can You Answer the Basic Easy Questions? • Why is market share important? • Should measure share in revenues or in quantities sold?What is the average market share in your industry? • What is your share of the market? • What is your relative share of the market?

  17. Intermediate Questions • What are the definitions of relative in relative share? • What is the relationship between Relative Market Share and Share of Total Market? • What determines the Size of your Relative Market share? • What is the Market Share Theorem? • What is a Marketing Audit?

  18. Relative to Whom? • Relative market share is your share compared to ________________ • Relative to your average competitor. • Relative to the market leader. • Relative to your three closest competitors • The issue of defining your competitors accurately is crucial!

  19. Relationship Between Relative Market Share and Share of Total Market • Market Share is your share of the total industry sales or the ratio of your sales over industry salesS = Q/Qi or R/Ri • Relative Market Share is your share compared to the average share or the ratio of your share over average shareSr = Q/Qa or R/Ra

  20. Relationship Between Relative Market Share and Share of Market • You can predict your sales, Q, if you know your share, S, and the forecasted industry sales, Qi • Q = S x Qi • You can predict your sales if you know your relative share, Sr and the forecasted sales for the average firm • Q = Sr x Qa = S/Sa x Qi/N

  21. You know this intuitively • You can predict your sales Q if you know • your relative market share, Sr, • the average market, Sa • And the size of the market Qi • Q =relative share% x average share% x market size • Q = Sr x Sa x Qi

  22. Relationship Between Relative Market Share and Market Share • Your sales are predicted as • Q = S x Qi • Decompose this with N competitors • Q = S x 1 x Qi • Q = S x N/N x Qi • Q = N(S) x 1/N x Qi • Q = N(Q/Qi) x Qi/N • Q = Q/(Qi/N) x Qa • Q = Q/Qa x Qa • Q = Sr x Qa

  23. Your sales are predicted asQ = S x Qi • Decompose this with N competitorsQ = S x 1 x Qi • Q = S x N/N x Qi • Q = N(S) x 1/N x Qi • Q = N(Q/Qi) x average share% x size of market • Q = Q/(Qi/N) x average share% x size of market • Q = Q/Qa x average share% x size of market • Q = Srx average share% x size of market • Q = relative share% x average% x market size • Q = Sr x Sa x Qi

  24. What determines the size of your Relative Market Share? • Relative Market Share, Sr, is determined by your Relative Marketing Effort, MEr • Sr = MEr

  25. Your Relative Marketing Effort is determined by your Relative Marketing Mix or by your relative 4 Ps • Relative price, Pr = P/Pa • Relative promotion, TPr = TP/TPa • Relative Quality, Ur = U/Ua • Relative Place (supply chain management), SCMr = SCM/SCMa

  26. Relative market share is predicted by Relative Marketing Mix in the Game • Sr = Ur x TPr x 1/Pr • Sr = Relative product version x Relative total promotion x 1/Relative Price

  27. What is the Market Share Theorem? • If your firm has a marketing effort equal to the average marketing effort in the industry • Then you should have a relative market share equal to the average market share

  28. You can predict your relative market share by knowing your relative marketing mix • Implies • You can predict your relative market effort by knowing your relative marketing share

  29. You can do a marketing audit if you know your relative market share

  30. Can you answer the Hard Questions? • What are the definitions of relative in relative share? • What is the relationship between relative market share and and share of total market? • What determines the size of your relative Market share? • What is the market share theorem? • What is a marketing audit?

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