Market Share Essay

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Market share of a firm’s product can be defined as the amount  of product  that  the firm sells into a market expressed as a proportion of the total amount sold in that  particular  market.  It is, as its name suggests, a measure of how much of the market a firm accounts for, given that it shares the market with its competitors. A firm’s market share is often considered  to be a strong  market-based  measure  of its strength,  but one must be wary of the limitations. These limitations tend to lie in one fact: many assumptions  are made in the calculation of what appears to be an objective measure of firm (or brand) strength.

A simple illustration  of market share is that a firm with 100 percent  market  share  would be described as a monopoly, and that the average market share for a market that contains n competitors is equal to 100 percent divided by n. That is, a market with five competitors would give each competitor an average market share of 20 percent.  From this illustration  it can be seen that averages are misleading, and it would be a rare market, indeed, that is shared evenly between its players.

Sometimes it helps to think of a market  as being comprised  of different types of competitors.  A market leader and a challenger may compete for the top position, with one or more market followers who do not directly challenge for the position of number one. Finally a “market nicher” may choose to operate in a very narrow section of the market, posing little direct threat to the market leader, challenger, and followers.

Furthermore, it may not be the firm itself that competes in a market. Often a firm will create a number of brands to compete in the same market. For example, Dutch consumer goods firm Unilever currently competes in the detergent category with the brand names Omo,  Persil, Surf, and  Drive. Therefore, a different market share exists for the parent company and also for each of the individual brands  owned by the parent company. Often markets are simply described on a brand-by-brand basis regardless  of which  parent company  owns which brand.  From here on, brand-level competition  will be referred to.

When  discussing  market  share  for a brand,  one must  be clear on how the market  share measure  is calculated.  Prudent  managers  must  decide  on  the unit  of  sales,  define  the  geographical  boundaries, and  determine  the  product  class. The unit  of sales is normally either some measure of volume or some measure of monetary value. Therefore, a wine brand’s volume share may be calculated by dividing the number of cases (of wine) they sell by the total number of cases sold in the market. The same company’s share by value could be calculated by dividing the value of their  sales by the total  value of the market.  Brands that sell for a higher price than their competitors will have a higher share by value than their volume share in the same market.

The geographical  boundary  of the  market  is the first step  a firm may take  in defining  its competitors. One may define a market very broadly (e.g., the United States) in order to address strategic concerns, or in a narrower sense (e.g., California). It is common for firms to consider  market  share on a number  of geographical levels depending on the purpose of the analysis.

The product  class is an important second  indicator  of a firm’s competitors.  Consider  a brand  of Australian  cabernet  sauvignon for US$8 per bottle. The brand  may be thought  of as belonging to one or more  of the following product  classes: all wine, Australian wine, table wine, red wine, cabernet sauvignon, wines in price  tier  US$6–10. The product class is largely a function of how the consumers  see the market and is often the focus of some argument between brand  managers  and their colleagues. Different pictures of brand performance  may be arrived at simply by deciding that one’s brand competes in a different product  class, because of a different set of competitors.

Market share has been shown to correlate very strongly with other  measures  of brand  strength.  An example is the law of double jeopardy; brands  with lower  market   share  are  penalized  twice.  Smaller brands  have a lower proportion of shoppers  buying them—even  once—in  a given period  of time  than do larger brands. Second, smaller brands are bought slightly less frequently  than  are larger brands.  Market share tends to have benefits for a brand  that  go beyond simply the amount  of product  sold—it tends to have a high correlation  to brand  penetration and customer loyalty.

Therefore, when discussing market share, one must be clear about whether they mean firm or brand market share, the unit of sales, which geographical market they mean, and the product class they are referring to. Finally, double jeopardy is an empirical law that recognizes the  relationships  between  a brand’s market share and its other  performance  measures  in repeat purchase markets.

Bibliography:   

  1. Robert   Buzzell, “Are  There  ‘Natural’ Market Structures?” Journal of Marketing (v.45/1, 1981);
  2. S. C. Ehrenberg, Repeat Buying: Theory and Applications (American Elsevier, 1972).

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