Firstly, lets define market share.
Market share is the total sales of a product or service in a specified market expressed as a percentage of the total sales by all entities offering a similar product or service.
The market share metric was originally created to measure the sale of tangible products in consumer markets it is a measurement which has enduring popularity. The most precise way to calculate market share is sales as a percentage of the total defined market over a specific period of time. Market share is possibly a flawed measure of marketing success. There is no accepted formula which links market share to profitability and it is a difficult measure to apply to services and intangibles.
That said, too many businesses focus solely on financial metrics and not on wider measures of their position in a market. Carillion issued returns showing a glowing financial situation only a few months before insolvency hit. Historical financial statistics can, and often are, manipulated; even if it is just to lower the tax bill. You need to look wider at the position of your firm in the market to ensure survival in that market.
Market share has five main components:
- Target Market Risk
- Proposition Risk
- SWOT Alignment Risk
- Uniqueness Risk
- Future Risk
Market share risk is a function of strategic strength. If you have a weak strategy, it is likely that you have high market share risk; and vice versa.
Understanding and managing market share risk requires the appreciation of the need to engineer the chosen target customer group and you value proposition. This process is best achieved through the application of marketing due diligence diagnostics.
Target market risk arises from having a poor definition of your target customers. This is especially important if you target customers are heterogenous. If you have a single value proposition and your target customers are not all the same (who is?), then the proportion of your target customer group your offer attracts is the upper limit of your market share.
Target market risk is high when marketing strategy does not target defined market segments but targets weakly defined classifications of customers. Recently the most commonly used weak classification was ‘millennials’; This refers to adults whose eighteenth birthday was after the year 2000. This is an especially weak category as the term millennial could apply to over one third of the UK population. That is not a defined target market. It is also weak to define your market in terms of particular goods and services.
The way to reduce target market risk is to have a deep understanding of both your market and of market segmentation techniques.
You need to carry out rigorous market segmentation processes to analyse your market. This reduces target market risk, which in turn reduces market share risk and thus business risk.
To create real market segments:
- Accurately define your market
- Decide where the purchase decision is made e.g. Consumers decide which TV to buy but your Doctor will often decide which prescription medicines are needed. You need to fill in the gaps in the following statements: Our market choice is made at …….. level by ………….
- You need to decide what drives the decision to purchase. Is it hygiene factors or motivator factors.
- You then need to cluster your customers by the motivator factors which drive them. Clusters are often driven by needs.
- You then need to find your customers within the wider market.
- Then you need to test your chosen segments. Are they accurate? Are they viable? Are they distinct? are they accessible? Are they homogenous?
To reduce proposition risk you need to ensure that your offer appeals to your target customers. too many entrepreneurs create a product and then try to find customers who are willing to buy it. Surely it is better to define a target group and then to create a product which meets the needs of that target group?
A major component in proposition risk can be the battle within a company between creating customised products and true mass production. Customised products are those ‘made to measure’ for a particular customer. Mass production is the creation of identical products for all consumers. It is the Savile Row suit versus the Burton suit.
Customisation can create luxury product but it is expensive to customise. Mass production allows for economies of scale. The problem is that expensive customisation may be the best way to reduce proposition risk.
Offering the same product to two or more market segments may be sub-optimal but it may be the best mix between maximising economies of scale and minimising proposition risk.
Some firms, such as BMW Mini and Brompton Bicycles offer mass customisation. This often requires highly efficient just in time procedures and significant levels of technology. Mass customisation will never be as cost efficient as true mass production.
When considering mass production you must also consider your product halo; the services you offer beyond the core product. There is the extended product, the services and optional extras you offer beyond the core product, and there is the augmented product, the status, emotional associations and ownership experience felt by your customers.
Fender owns the Squier brand of electric guitar. Often there is little to distinguish a basic Fender guitar from a high-end Squier guitar. So if the products are of equivalent quality what would you choose. I suspect most guitar players prefer to have the Fender name on the guitar headstock.
It is therefore possible to have a mass produced core product but to offer a variety of service options and optional extras to suit the needs of heterogenous consumers.
to lower proposition risk, you need a clear understanding of the nature of your value proposition, its components and its attractiveness to consumers
SWOT alignment risk is where your strategy does not align with organisational strengths and weaknesses; or it fails to exploit opportunities; or it fails to defend against threats.
Previously, I have criticised many business start-up programmes for getting new business proprietors to do a SWOT analysis without going further and defining strategies to deal with SWOT issues.
SWOT analysis requires the alignment of internal business factors with external market factors. It is not simply the listing of these factors. You must use SWOT analysis to identify key market factors and to suggest key issues. You must then develop strategies to address these issues.
So BMW’s strength in engineering excellence allow their vehicles to be marketed as a driving experience and status symbol not just a car. Apple’s focus on design allows their products to be aspirational and ‘cool’.
Weaknesses are only weaknesses if they are meaningful to the customer and it is uncommon, i.e. not shared by all suppliers in the market. A weakness must also be costly or difficult to correct to be a true weakness and it must not be able to be compensated by other factors.
A strength is a strength if:
- it is valuable to the customer
- It is rare (not possessed by competitors)
- It is imitable (hard to copy)
- it is aligned i.e. you are best placed to leverage the strength.
Uniqueness risk is lowered by not going head on against your competitors. If all competitors have the same offer it is easy for consumers to switch preferences. Uniqueness risk is usually a result of poor targeting. Remember much of marketing strategy is about the creation of difference and creating competitive advantage through that difference.
Today’s strong market may be tomorrow’s weak market. I recently watched a repeat of the programme Who Do You Think You Are? which focused on his links to the Kilner glassware firm. Clarkson wondered where the fortune of his Kilner relatives went. The truth is that the glass bottle and jar market collapsed with the arrival of new plastics and his ancestors made a critical error in not buying new bottling technologies which were snapped up by their competitors.
The Kilner’s business failed because they did not properly assess future risk. Similarly, the record industry failed to properly assess the future risk of download technology and allowed Apple and other non-music related firms to dominate their market.
To prevent future risk, you should constantly be scanning your macro-environment, use PESTEL analysis. If a high level of future risk is evident in your market, you need to accurately forecast potential market change through future scenario building. you cannot sit in your comfort zone. Look beyond your existing market for potential new entrants and disruptors offering new market models and supply technologies.