Published July 2005

When share means
more than sales

When is market share a more telling performance indicator than sales? When your growth curve is lagging the market. Imagine your sales are growing at a healthy pace — you're doing great, right? Or, maybe you're falling behind and don't know it. Market growth cycles are perishable, and once they pass, so do your opportunities.

If your sales are strong compared to past performance, but relatively weak against key competitors, then you are losing market share and a growth opportunity. Tracking sales alone doesn't show the complete picture. Measuring market share provides a more accurate depiction of performance.

The key difference is that sales figures give you an "absolute" performance mark. Market share, on the other hand, gives you a "relative" performance indicator — both are very important.

Estimating your market share is a bit more involved than simply dividing your sales by those of the total market. Here are three steps to calculating your market share.

• Define your market: Begin by answering the question: share of what? Who are your competitors; do they include indirect or just direct competition? And what are the boundaries that outline your market (specific product lines and services, market radius, customer segments)? Each time you evaluate your share, you want to do so using the same criteria, so defining your market up front is important. Ben Bidwell (Lee Iacocca protégé and former marketing czar of Ford Motor Co.) is best known for saying, "Define your market, don't let it define you."
• Determine your metric: Before breaking out the calculator, you need to determine what exactly you'll be measuring. Consider using the same metric that defines your sales objectives. What do you currently measure: units sold, accounts closed, total sales revenue, sales by line, sales by customer segment? Another consideration is what competitive information is the easiest to gather. Your business might focus on gross profit as the internal litmus, yet units sold or total revenue might be more accessible competitive intelligence.
• Establish your baseline: Establishing your baseline takes a little work in that you'll need to gather information on competitors. Some industries are easier than others because they have trade associations (or journals) that publish good statistics. The Internet, U.S. Small Business Administration and industry manufacturers or vendors also can be good sources of information. When we can't find good competitive intelligence, we mystery shop our clients' competitors. Another popular technique is measuring "relative market share." You can do this by identifying and benchmarking a few top local competitors and comparing your relative share to theirs instead of the entire market. This is easier and faster, and it still gives you a good baseline for future comparisons.

Once you have a good baseline, you can start thinking about share growth strategies. But it all starts with having good share data; and good business information leads to better decision making.

Next month's column will examine the key factors that contribute toward increasing market share, such as share of preference, share of voice and share of distribution. Stay tuned.

Andrew Ballard, president of Marketing Solutions Inc. in Edmonds, develops brand leadership strategies for businesses and teaches strategic marketing through Edmonds Community College. He can be reached at 425-672-7218 or online at www.mktg-solutions.com.

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