Anticipated Market Share and Size

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MARKTING
BASIC DEFINITIONS
POSTING 28122

MARKET SHARE

A firm's performance relative to its competitors can be measured by the proportion of the market that the firm is able to capture. This proportion is referred to as the 'market share'. The basic formula is as follows:

Market Share = Firm's Sales / Total Market Sales

Another definition is that market share is the ratio of sales of a brand to the total sales of the product-type in a defined area. It can also be defined as the ratio of sales of a company's entire product line to the total sales of all related companies. Market share is usually presented as a percentage, although sometimes a raw number of sales or units is provided. If the TOTAL raw number is provided, market share percentage can be calculated by dividing the brand's number by the total number and multiplying the result by 100.
While the firm's own sales figures may be readily available, total market sales are more difficult to determine. This information is available from trade associations and market research firms.

There are some general questions that should be asked in determining an organization's market share. Answering these questions will enable an organization to define their market systematically. Note that the type of merchandise or service and the target market is kept in focus. The one determines the other to a large extent. An organizations should be able to answer the following questions:

• Is the market made up of consumers (people who use the product or services for themselves) or does it also include wholesalers and retailers.
• What is the socio-economic profile of the customers.
o Age. Try to determine the approximate age range of the customer.
o Income. Will the business cater to the needs of low, middle or upper income people or is your product for everyone.
o Gender. Although the product may be used by male or female, or both, which gender will normally do the actually shopping for your product.
o Education/Culture. These aspects frequently affect the style, pricing, etc. of merchandise that the customer prefer.
o Location. Geographical aspects of your market are important. They affect the ease with which customers can reach the organization and the kinds of needs that arise from where they live.
o Occupation. What proportion of your customers fall into different occupational categories.

Market share data is sometimes hard to find. There are a number of market share reference books and these are fairly straight forward, but one may also need to look into a statistical index as well. (http://www.lib.duke/edu/reference/subjects/business/m_share.htm lists some of the reference books and indexes available.

Market share is associated with profitability; therefore, an organization seeks to increase it market share for a number of reasons:

1) economies of scale - higher volume can be instrumental in developing a costs advantage
2) sales growth - when the industry is not growing, the firm can still grow its sales by increasing its market share
3) reputation - market leaders have clout that can be used to their advantage; and
4) increased bargaining power - gives an advantages in negotiations with suppliers

The market share of a product can be modeled as follows:

Share of Market = Share of Preference x Share of Voice x Share of Distribution.

The Share of Preference can be increased through product, pricing and promotional changes. The share of voice is the firm's proportion of total promotional expenditures in the market. Thus, share of voice can be increased by increasing advertising. Share of distribution can be increased through more intensive distribution.

An increase in market share, however, is not always desireable:
• If the firm is near its production capacity, an increase in market share might necessitate investment in additional capacity. If this capacity is underutilized, higher costs will result.
• Overall profits may decline if market share is gained by increasing promotional expenditures or by decreasing prices
• A price war might be provoked if competitors attempt to regain their share by lowering prices
• Antitrust issues may arise if a firm dominates its market
If a firm is able to identify certain customers that are unprofitable, it may drop these customers and lose market share while improving profitability. That way it is advantageous to decrease market share.

MARKET SIZE

The term 'market' refers to the group of consumers or organizations that is interested in the product, has the resources to purchase the product, and is permitted by law to acquire the products. The market definition begins with the total population and progressively narrows:

http://www.netmba.com/marketing/market/definition
Some definitions are warranted: Potential market are those in the total population who have interest in acquiring the product; available market is those in the potential market who have enough money to buy the product; qualified available market are those in the available market who legally are permitted to buy the product; target market is the segment of the qualified available market that the firm has decided to serve and the penetrated market are those in the target market who have purchased the product.

Market size is not necessarily fixed. The size of the available market for a product can be increased by decreasing the product's price. The size of the qualified available market can be increased through changes in legislation that may result in fewer restrictions on who can by the product. Defining the market is the first step in analyzing it. This is done by market segmentation, which is the identification of portions of the market that are different from one another. Segmentation allows the firm to better satisfy the needs of its potential customers better than the competition.

Mass marketing refers to treatment of the market as a homogenous group and offering the same marketing mix to all customers. The drawback is that customer needs and preferences differ and the same offering is unlikely to be viewed as optimal by all customers. Target marketing on the other hand recognizes the diversity of customers and does not try to please all of them with the same offering. Consumer markets can be segmented on the following characteristics: 1) geographic - region, size of metropolitan area, population density and climate, 2) demographic - age, gender, family size, occupation, etc., 3) psychographic - interests, opinions, attitudes; and 4) behavioralistic - brand loyalty, reading to buy, usage rate, ...