Market share analysis

Market share analysis is an important part of market analysis and indicates how well a firm is doing in the marketplace compared to its competitors.

Givon, Mahajan, and Muller have researched spreadsheet and word processing software firms to give a clearer image of how to determine market share in the software industry. They propose six factors to help estimate the value of market share (1997):

1. unit or dollar sales
2. user base (since piracy and brand switching effect)
3. market definition(scope of definitions)
4. scope of denominator(which other brands included)
5. time frame length
6. product definition (brand, product line, or strategic business unit)

Detail

A market share analysis needs to take into account the following:

TOTAL MARKET SIZE: This refers to the annual business volume in currency or in number of transactions;

MARKET GROWTH RATE: This refers to the Compounded Annualized Growth Rate ( CAGR ) taken over a period of 3 to 5 years;

MARKET SHARE: The breakup of market share in % terms, to help identify the top players, the middle and the "minnows" of the marketplace, based on the volume of business conducted;

MARKET SEGMENTATION: What are the key factors that determine the market, is it price, is it quality, is it speed of service, is it ease of maintenance, no. of points of distribution, etc. e.g. by mapping on quality and price parameters, it is possible to identify on a X-Y plane as to which are the spaces which are crowded by service providers and which are the relatively empty spots. This understanding helps plan for entry barriers;

KEY PLAYERS: Who are the top players in each identifiable segment of the market. Are they providing premium quality, or premium service or price advantage. This helps identify possible future target segments;

SWOT ANALYSIS: It is critical to identify the main Strengths of top players as well as Weaknesses / Areas of Improvement to combat the onslaught in a marketing warfare and help prepare accordingly. Strength and weakness include brand equity, geographic presence, strong management / leadership, technological edge, patent / copyrights, etc.

It is equally important to identify emerging Opportunities which could make the market grow faster / larger or acquire business more easily. Similarly, are there Threat factors that could reduce the total market size. These could be due to regulatory guidelines, changes in fashion trends, consumer preference, macro economic events like currency crisis, import / export, war, natural calamity, demographic shift, etc.;

BUSINESS CONTINUITY PLAN: While planning for market share analysis, it is important to plan for the worst, i.e. how to ensure continuity of the going concern in the event of a calamity. Companies which have effective Plan B usually sustain shocks better and ensure achievement of targeted market share.

TARGET MARKET SHARE: Based on the above analysis, it is possible to arrive at the overall market size for the assessment period, and thereby decide on the volume of business any one firm targets to achieve during the period. This helps determine the firm's targeted market share. This also help budget for strategic activities like budgeting for R&D, sales promotion, marketing, training, etc.

References

Givon, M. Mahajan, V. and Muller, E. (1997). "Assessing the Relationship between the User-Based Market Share and Unit Sales-Based Market Share for Pirated Software Brands in Competitive Markets". Technological forecasting and social change 55 (2): 131–144. doi:10.1016/S0040-1625(96)00181-3. 

External links

• http://tutor2u.net/business/marketing/market_analysis_marketshare_intro.asp