Market Share Metrics II - Management By The Numbers

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Market Share Metrics II
This module covers decomposition of market share,
share of penetration, usage index, share of
requirements, brand and category penetration, brand
development index (BDI), and category development
index (CDI).
Author: Paul Farris
Marketing Metrics Reference: Chapter 2
© 2010-14 Paul Farris and Management by the Numbers, Inc.
Most business people know the common definition of market
share as shown below.
MARKET SHARE
Market Share
Definition
Market Share = Brand sales / Sales of all brands in a market.
This definition is context dependent. That is, one calculates market
share of units or dollars, market share of a particular region or segment,
market share for a particular time period, etc.
Insight
It is essential to remember that when calculating market share, one must
compare apples with apples with regard to the market (geographic,
demographic or other definition), sales definition (units or dollars), time
period (particular year, month, etc.). Otherwise it is at best meaningless,
or more likely, misleading and inappropriate.
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Definition
Now let’s consider an alternative definition for market share, one that
breaks it down into three components:
•
•
•
Share of Penetration
Usage Index
Share of Requirements
COMPONENTS OF MARKET SHARE
Components of Market Share
Alternative Definition of Market Share =
Share of Penetration x Usage Index x Share of Requirements
Insight
By breaking down market share into these three components, we can
measure a company’s performance in each component to better
understand where to focus efforts to improve sales.
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Let’s start by reviewing the two primary definitions of market
penetration and then proceed to the definition of share of penetration
used in the market share definition.
Definitions
Category Penetration = The number of people/households who bought
(at least once in the time period) any brand in the category divided by the
defined population.
MEASURES OF MARKET PENETRATION
Measures of Market Penetration
Brand Penetration = The number of people/households who bought (at
least once in the time period) the specific brand of interest divided by the
defined population.
Insight
Selecting the appropriate time period is critical for making the metric
meaningful. Consider the difference in brand penetration for a brand of
shampoo calculated for a particular day vs. over a full year.
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Definition
Share of Penetration = Brand Penetration / Category Penetration.
Or the number of households that buy your brand divided by the number
of households buying any brand in the category during time period.
SHARE OF PENETRATION
Share of Penetration
Suppose over the period of a month, 500 households bought BigBomb
brand flea foggers. During that same month, 2,000 households bought
at least one product from any brand in the flea fogger category.
• The Share of Penetration for BigBomb flea foggers would be 500 /
2000, or 25%.
• Share of Penetration answers the question, “what is your brand’s
share of households that purchase a brand in this product
category?”
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Definition
Usage Index = Average consumption (in standard units) of households
that buy your brand divided by the average consumption of households
buying any brand in the category at least once during the relevant time
period.
USAGE INDEX
Usage Index
Suppose over the period of a year, the average consumption of
households that bought ShowerFun brand shampoo was 6 15oz bottles,
compared to the average consumption of households that bought any
brand of shampoo was 4 15 oz bottles.
• The Usage Index for households buying ShowerFun brand shampoo
would be 6 / 4, or 1.5.
• This index is greater than 1.0 if the brand has a disproportionate
percentage of heavy users.
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Definition
Share of Requirements = Total unit (or $) purchases of the brand by
households that buy the brand divided by the total unit (or $) purchases
in the category by those households during the relevant time period.
This amounts to market share among buying households.
SHARE OF REQUIREMENTS
Share of Requirements
Suppose that last month, the total unit purchases for households that
bought AloeHa brand sunscreen was 1,000,000 bottles of AloeHa.
Those same households purchased 2,000,000 bottles of sunscreen in
total (presume same size bottle). What is the Share of Requirements?
• The Share of Requirements is (1,000,000 / 2,000,000), or 50%.
• Answers the question, “What is your brand’s share of total
purchases (or “requirements”) of households that purchased your
brand?”
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Question 1:
Mr. SugarPuff brand cereal has a share of penetration of 20% among
households in the town of Sweetville. The usage index of households
in Sweetville that purchase Mr. SugarPuff is 1.2. Its share of
requirements is 50%.
What is the Market Share for Mr. SugarPuff brand cereal in Sweetville?
MARKET SHARE: SAMPLE PROBLEMS
Market Share: Sample Problems
Answer:
Market Share =
Share of Penetration x Usage Index x Share of Requirements
Market Share = 20% x 1.2 x 50%
Market Share = 12%
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Question 2:
EatWheats brand cereal has market share in Urbanopolis of 6%. The
usage index for households in Urbanopolis that purchase EatWheats
cereal is 0.75. Its share of requirements is 40%.
What is the Share of Penetration for EatWheats brand cereal in
Urbanopolis?
MARKET SHARE: SAMPLE PROBLEMS
Market Share: Sample Problems
Answer:
Market Share =
Share of Penetration x Usage Index x Share of Requirements
Therefore, Share of Penetration =
Market Share / (Usage Index x Share of Requirements)
Share of Penetration = 6% / (0.75 x 40%) = .06 / .30
Share of Penetration = 20%
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Question 3: On average, for all brands in a particular market, what
will the Usage Index always be?
A. 2.0
B. 1.5
C. 1.0
D. 0.5
MARKET SHARE: SAMPLE PROBLEMS
Market Share: Sample Problems
Insight
Since usage index for a particular brand is a measure of whether those
who purchased a brand are heavy users (>1.0) or light users (<1.0) , the
average is by definition 1.0. Only in Lake Woebegone is everyone
above average!
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Definition
Brand Development Index (BDI) = Brand sales ($ or units) in a
specified segment compared to sales of brand in an entire market,
usually on a per-capita (per person) basis.
BRAND DEVELOPMENT INDEX
Brand Development Index (BDI)
For example, Doodle pencils has sales of 10 pencils per-capita in
Missouri and 8 pencils per-capita in the U.S. as a whole. Doodle’s BDI
in Missouri is 125 % or 1.25 (10 / 8). Jamie Sharper, the salesperson
for the Missouri region, says he deserves a raise of at least 10% due to
his superior performance compared to the average salesperson in the
U.S.
Based on this BDI analysis, it would seem like Jamie has a good point.
What else might we want to consider?
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Definition
Category Development Index (CDI) = Category sales ($ or units) in a
specified segment compared to sales of the category in the entire
market, usually on a per-capita basis.
For example, if there are 30 pencils per-capita sold in Missouri
compared to 25 pencils per-capita in the U.S. as a whole, the pencil
CDI for Missouri would be 120% or 1.2 (30 / 25).
CATEGORY DEVELOPMENT INDEX
Category Development Index (CDI)
Insight
Therefore, an improved measure of performance for the salesperson
would be BDI / CDI for the region. For Doodle in Missouri, this is 125% /
120%, or approximately 104%. Using this measure we see that the
salesperson is doing better than average, but only 4% better, not 25%
better.
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Marketing Metrics by Farris, Bendle, Pfeifer
and Reibstein, 2nd edition, chapter 2.
FURTHER REFERENCE
Further Reference
MBTN Market Share Metrics I which
introduces market share calculations, discusses
market definition, as well as covering relative
market share and market concentration.
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