Looking at Market Share through a Different Lens
In the marketing world, we often think of market share as the percentage of your company’s sales compared to industry-wide sales. This simple, common metric can be used to relate your company’s success to other competitors in its arena and describe outcomes like changes in revenue.
“Under most circumstances, enterprises that have achieved a high share of the markets they serve are considerably more profitable than their smaller-share rivals,” according to an article in Harvard Business Review. “This connection between market share and profitability has been recognized by corporate executives and consultants, and it is clearly demonstrated in the results of a project undertaken by the Marketing Science Institute on the Profit Impact of Market Strategies (PIMS).”
However, there is far more that market share can tell you than that. Let’s go a step further to break down market share into three core components:
Share of Penetration
Share of penetration compares your company’s brand penetration to the category penetration of your product. It helps you understand your brand’s share of households that purchase a brand in a particular product category.
For example, if you work for Johnson & Johnson, you may calculate your share of penetration to learn how your share of J & J baby shampoo lines up against other baby shampoo brands throughout a particular time period.
Usage Index
Another useful metric that makes up market share is usage index. Usage index provides a ratio that, in looking at a particular category, compares the average consumption (in standard units) of households that buy your brand to that of households buying any other brand, during a specific time period.
To illustrate, let’s imagine you work for J & J again. Usage index is helpful in understanding whether consumers over index, or have a heavy consumption of, or under index, or lighter consumption, of J & J baby shampoo versus other brands.
Share of Requirements
Lastly in the trifecta is share of requirements. Share of requirements helps answer the question, “what is my brand’s share of total purchases by households compared to other brands in a particular category?”
Going back to the J & J example, share of requirements would help you determine your share of purchases of J & J baby shampoo compared to those same households’ purchases of other non- J & J baby shampoo.
Together, these three metrics give additional color to an already useful measure. Market share proves to be continuously valuable in understanding brand performance.