MARKET SHARE ANALYSIS

 In this era of intense competition, both world-wide and domestic, business firms of all sizes and varieties
have become more and more concerned with the market-share figures they achieve in the marketplace.
Market shares command the attention of business managers as key indices for measuring the performance
of a product or brand in the marketplace.
 Out of total purchases of a customer of a product or service, what percentage goes to a company defines its
market share. In other words, if consumers as a whole buy 100 soaps, and 40 of which are from one
company, that company holds 40% market share.
 There are various types of market share. Market shares can be value or volume. Value market share is
based on the total share of a company out of total segment sales. Volumes refer to the actual numbers of
units that a company sells out of total units sold in the market. The value-volume market share equation is
not usually linear: a unit may have high value and low numbers, which means that value market share may
be high, but volumes share may be low. In industries like FMCG, where the products are low value, high
volume and there are lots of freebies, comparing value market share is the norm.
 The significance of market share: Market share is a measure of the consumers' preference for a product
over other similar products. A higher market share usually means greater sales, lesser effort to sell more
and a strong barrier to entry for other competitors. A higher market share also means that if the market
expands, the leader gains more than the others. By the same token, a market leader - as defined by its
market share - also has to expand the market, for its own growth.
 To the extent that market shares are used as market performance indices, it is clearly desirable for the
individuals concerned to have thorough knowledge of the processes which generate market-share figures
and to be able to analyze the impact of their own actions on market shares, as well as their profit
implications. Lacking such knowledge, one might be tempted to oversimplify the cause-and-effect
relationships between market shares and marketing variables, or to equate market shares to profitability (a
not unusual tendency even among seasoned businessmen) and fall into deadly traps of blindly competing
for market shares for their own sake.
 The interest in market-share analysis has received new impetus in recent years, especially since the advent
of optical-scanning systems — POS (point of sale) systems — at the retail level. A POS system collects
sales records (essentially in the form of customer-by-customer receipts) at check-out counters of retail
establishments with optical scanners which read bar codes of merchandise labels. It then puts the sales
records in a computer (i.e., store controller) where sales records are tabulated into item-by-item sales
summaries. POS systems were originally introduced in retail stores to improve the efficiency and accuracy
of store personnel at the check-out counters and in the backroom and have achieved a considerable degree
of success in speeding up check-out operations and in improving inventory control. POS-generated sales
data also have an obvious potential as the database for merchandising and store management. Some authors
even suggest that, by linking POS systems with electronic ordering systems (EOS) which handle order
processing as well as inventory control, store automation will soon become a reality. POS systems also
open up a new source of market-share data at the retail level for manufacturers of consumer products. POS
data have many advantages over traditional sources of market-share information such as retail audit,
warehouse withdrawal, and consumer panel data, in that they are fast, accurate, low cost, and detailed.
Already various marketing-research agencies are in the business of gathering POS data from a sample of
stores and supplying manufacturers with summaries of them. In addition, several research agencies operate
optical-scanner panels (or scanner panels) of consumers in a number of communities which generate
purchase histories per household. It is often pointed out that scanner panels are superior to the traditional
diary panels in their accuracy and speed.

The Process of Market-Share Analysis

 Before we begin to describe the methodology of market-share analysis, it is perhaps beneficial to define its
basic characteristics so that the reader will not be misled as to its relevance and eventual applicability to his
or her own problems. The three key characteristics are that market share analysis is competitive,
descriptive as well as predictive, and profit- oriented.
 First, market-share analysis is competitive. This implies that the effects of one’s actions must be
analyzed in conjunction with the market positions and actions of competitors. (In economic jargon, the
marginal effect of a marketing variable is a function of competitors’ actions and their market shares.) This
also means that one will have to distinguish those factors which affect one’s product/brand from more
general factors which affect the entire industry (e.g., seasonality in product usage, and business and
 economic conditions). Finally, this means that, given competitors who are free to adopt any marketing
strategies, market-share prediction also involves the prediction of competitors’ future actions, which is a
difficult undertaking in itself. Many experienced managers know that their best-laid plans mean little if
they fail to predict correctly the courses of action the competitors are going take. At this juncture we
emphasize that the market-share analysis we explore in this book is basically for products in either the
growth or maturity (i.e., saturation) stages of their product life cycle. In this context, it is important for one
to distinguish between a new brand for a firm in an established industry and an entirely new product which
is creating a new industry. We do not belittle the importance of being able to predict the future shares for a
new product, but we envision that the analytical approach for predicting the performance of a new product
is substantially different from that for an established product. When a radically new product is introduced
by a firm in the market, it usually holds a temporarily monopolistic position due to technological
advantages or legal protection (i.e., patents). Because the structure of the market and competition in the
introductory stage of the product life cycle is so different from that in either the growth or maturity stages,
the approaches to market-share analysis in this book may not be directly applicable to new products.
 Second, market-share analysis must be descriptive as well as predictive. A common tendency among
business managers is that if they can make good forecasts of market shares, they expect nothing more. The
ability to make accurate predictions of future shares is indeed a major contribution of market-share
analysis, but we do not believe that it is enough. Market-share analysis should provide the managers with
much needed information on the structure of the market and competition and the influence of marketing
actions on brand performance — all of which are indispensable for them to be able to establish viable
marketing strategies. Knowing that competitor A is vulnerable to our actions, but competitor B is not, or
knowing one’s share is much affected by the actions of competitor C, clearly gives a manager a better sense
of competitive moves he/she can make in order to deal successfully with competitors.
 Third, market-share analysis is profit-oriented in the sense that any firm is interested in not only
market-share movement, but also its profit consequences. One might talk about a plan to expand the market
share for a firm’s product/brand, by improving quality, reducing price, advertising more, employing more
sales persons, etc. But the key question obviously is, “Is it worth our effort to increase the market share?”
Experience analysis, for example, tells us to try to expand one’s market share if the increase in share allows
the firm to have the leading position on the experience curve, that is, if the resultant share is the largest
among the competitors. This in turn suggests that for firms with currently small shares the mad rush to
become the industry leader may have dire consequences. The ability to predict the cost of achieving a
certain market-share level should be as valuable for a firm as the ability to estimate the likelihood of
achieving that share. Based on the above characterization, we assert that the basic goal of market-share
analysis is to evaluate the effectiveness of marketing actions in a competitive environment.

Steps in the Process of Market-Share Analysis

Stage 1: Specification of Models

This stage is for the selection of appropriate models for describing market share movement and changes in overall
(industry) sales volume. (In a simplest specification, a firm’s sales volume is equal to the product of industry sales
volume and its market share.) At the time when a firm
is developing a system for market-share analysis, this stage is indispensable since the models determine data
requirements in the data-collection stage. If the firm already has an ongoing data stream, the specification task
becomes one of choosing a model which will allow the analyst to assess the impact of the variables in the data
stream on demand. After the initial specification, this stage is only repeated when the analyst feels that the
underlying structure of the market and competition is changing or has changed, and that it is necessary to modify or
recalibrate the model. Modification may also be motivated by new data becoming available or by the desire for a
more comprehensive explanation or assessment. Techniques for this specification step, such as time-series and
experimental analyses, can help address issues concerning the duration of marketing effects and whether marketing
instruments interact.

Stage 2: Data Collection and Review

Market-share data may be obtained from many sources. A traditional source was the so-called retail store-audit data,
but since the adoption of optical scanners (i.e., POS systems) more data at the retail level are being generated by
scanners. Wholesale warehouse withdrawals are also
used as a source of market-share data for many consumer products. Consumer surveys and diary panels are
sometimes used for market-share estimation. For many firms the only way to get own market-share figures is to
divide the firm’s own sales volume by what it can estimate of the industry sales volume for the same period and
area. One critical problem with the data collection stage for market-share analysis is the need for information on
marketing activities of competitors as well as the firm’s own activities. Any reasonably designed market information
system should be able to meet adequately the information requirement on the firm’s own activities, but the
information on competitors’ activities is a different matter. This requires careful monitoring of competitors’
activities in the market and compiling a comprehensive file for each competitor. Optical scanner data at the retail
level, if they are available, are capable of supplying competitive information for a limited set of marketing variables
such as shelf price and store displays. These data may be combined with available information on newspaper
features, and manufacturers’ and stores’ coupons. Advertising expenditures or benchmarks such as target-audience
rating points (TARPs) or gross rating points (GRPs) can be used to assess how these efforts relate to demand.
Scanner panels can be tapped for measures such as brand inventories in panel households, indices of brand loyalty or
time-since-last-purchase. These panels are also rich sources for potential segmentation by usage frequency or style,
or demographic characteristics. Simple, graphical summary relating market shares to other collected data can reveal
a great deal about the nature of market response and competition.

Stage 3: Analysis

Once necessary data are collected for an adequate number of periods and/or areas (to give sufficient degrees of
freedom), the analyst can proceed to:

1. Estimation of Model Parameters: Once the appropriate models are chosen, the next step is to estimate
the parameters of the models. Statistical techniques such as log-linear regression analysis and maximum-
likelihood estimation will be used in this step. Even though the model specification is not changed, it may
be necessary to re-estimate parameters periodically. This is desirable not only for the purpose of adapting
parameter values to changing conditions but also for the purpose of improving the accuracy of estimates.
2. Conversion to Decision-Related Factors: Model parameters themselves provide the analyst or manager
with little information as to the structure and occurrences in the market and competition. From a decision
maker’s viewpoint, more immediately useful information may be the responsiveness of market shares
toward marketing activities of the own firm and competitors as summarized by market simulators. Or it
may be the visual presentation (map) of the relative market positions of competing products/brands. It takes
some ingenuity to produce a representation that is easily understood by managers who are not
quantitatively oriented.

Stage 4: Strategy and Planning

The planning stage may be divided into two steps.

1. Strategy Formulation: In this step the information obtained in the analysis stage is used for the
formulation of marketing strategies. It is hoped that descriptive, rather than predictive, types of analysis
will give the analyst and manager(s) concrete suggestions for formulating marketing strategies. The graphic
summaries, for example, may suggest more effective marketing strategies.

2. Forecasting and Planning: Future market shares and sales volumes will be forecasted on the basis of a
marketing plan. It will be nonsensical to speak of forecasts without an explicitly stated plan. Market
simulators require, for example, explicit assumptions about competitive activities. Consequently, they
produce conditional forecasts (i.e., condi- tional on these assumptions). A plan can be evaluated against
various competitive scenarios. Also, it is theoretically possible, but not always practical, to search for an
optimal (i.e., profit-maximizing) plan.

Stage 5: Follow-Up

It is critically important that the analyst reviews the performance of the firm’s product/brand after marketing plans
are put into effect. A careful review of one’s plans and actual performance will improve not only future planning but
also the techniques for market-share analysis. In doing a follow-up, it is not enough just to look at whether market
shares were accurately forecasted. Market shares and consequently actual sales volume differ from the forecasted
values for three basic reasons.
1. Forecasts of industry sales volume were off.
2. Forecasts of market shares were off.
3. Marketing activities were not carried out as planned.
If the actual performance is at variance with the planned, It is essential for the analyst to pin-point the cause of
variance by careful analysis. The variance analysis may be a useful technique for this purpose.