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