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Which Market Share Measure is Right?

“We took our eyes off the ball. The recession hit and we focused on maintaining our profitability while we milked some channels instead of others. We went after big accounts and laid off some salesmen calling on smaller accounts. Now we recognize that we ceded share to some of our competition and we want it back.”
Senior executive industrial company

When the recession hit, many suppliers, hyper-focused on maintaining profitability during an economic downturn lost sight of smaller accounts that they deemed less attractive. Meanwhile, competitors came in and stole market share. Now that the economy is showing signs of a recovery, growth is calling and companies want their share back.

One senior executive Blue Canyon recently worked with lamented that overall share had declined by several percentage points between 2009 and 2012. He was reflecting on his market share reports that carefully tracked monthly, quarterly, and annually by product line in dollars. His focus was on product share, but saying that product share needed to improve was a desired result. To determine how to regain lost product share, other management levers needed to be pulled.

One of the most frequently applied business performance measurement is market share, but what market is being measured? The executive mentioned above was referring to overall market share measured against a handful of competitors. However, Blue Canyon examined deeper dynamics of the share loss by region and by individual product lines. We quickly learned that two major product lines contributed to most of the lost share. We then learned that the lost share came from specific territories and jobs. The findings were in line with the conventional wisdom that many companies took during the recession, and the end result had taken a toll on our client’s business.

A key principle at Blue Canyon is that all manufacturers must understand how products flow from their shipping docks through distribution partners (e.g., distributors, dealers, system integrators, contractors, installers) to the ultimate end user. Product market share most often is measured when there is the first arm’s length transaction. In many cases, but not always, this can be a sale to an independent distributor or dealer.

What is more important is that a manufacturer understands its market one or two steps downstream, or the manufacturer’s customers’ customers. In some industries this could be measured by share of dealers, contractors, or installers. Recognizing that market definitions and market share measures may be different at different points in the channel or along the customer chain can yield insights into market share that looking at product share alone will not. In this particular scenario, to capture lost share, our client needed to understand its position with each of the downstream customers—specifically, its position with contractors was critical.

Combining a territory product share metric with a map of where our client and competitors’ distributors were located in each territory allowed our client to see where they might be under distributed relative to the available market or competitors over distributed. This enabled a series of corrective actions focused on increasing the “share of wallet” in contractors currently served.

The synthesis of several metrics can reveal powerful insights into markets and create calls to specific action. By comparing share of customer spending and share of customers served, you can arrive at powerful takeaways that suggest in some areas it might be appropriate to focus on reaching new customers, in others it is best to increase share of wallet. In some territories it is necessary to do both and fortunately some areas need to stay their current course.

The important point is these conclusions had to be reached through multiple metrics that examined market position and could not have been achieved by looking at product market share alone. In each case we are talking about market share, but there are many different and relevant measures. If you pick the wrong market metric it can mislead you.

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