Tuesday, June 22, 2010

Market Share

MARKET SHARE

Sales figures do not necessarily indicate how a firm is performing relative to its competitors. Rather, changes in sales simply may reflect changes in the market size or changes in economic conditions.

The firm's performance relative to competitors can be measured by the proportion of the market that the firm is able to capture. This proportion is referred to as the firm's market share and is calculated as follows:

Market Share = Firm's Sales / Total Market Sales

Sales may be determined on a value basis (sales price multiplied by volume) or on a unit basis (number of units shipped or number of customers served).

While the firm's own sales figures are readily available, total market sales are more difficult to determine. Usually, this information is available from trade associations and market research firms.

Reasons to Increase Market Share

Market share often is associated with profitability and thus many firms seek to increase their sales relative to competitors. Here are some specific reasons that a firm may seek to increase its market share:

  • Economies of scale - higher volume can be instrumental in developing a cost advantage.
  • Sales growth in a stagnant industry - when the industry is not growing, the firm still can grow its sales by increasing its market share.
  • Reputation - market leaders have clout that they can use to their advantage.
  • Increased bargaining power - a larger player has an advantage in negotiations with suppliers and channel members.

Ways to Increase Market Share

The market share of a product can be modeled as:

Share of Market = Share of Preference x Share of Voice x Share of Distribution

According to this model, there are three drivers of market share:

  • Share of preference - can be increased through product, pricing, and promotional changes.
  • Share of voice - the firm's proportion of total promotional expenditures in the market. Thus, share of voice can be increased by increasing advertising expenditures.
  • Share of distribution - can be increased through more intensive distribution.

From these drivers we see that market share can be increased by changing the variables of the marketing mix.

  • Product - the product attributes can be changed to provide more value to the customer, for example, by improving product quality.
  • Price - if the price elasticity of demand is elastic (that is, > 1), a decrease in price will increase sales revenue. This tactic may not succeed if competitors are willing and able to meet any price cuts.
  • Distribution - add new distribution channels or increase the intensity of distribution in each channel.
  • Promotion - increasing advertising expenditures can increase market share, unless competitors respond with similar increases.

Reasons Not to Increase Market Share

An increase in market share is not always desirable. For example:

  • If the firm is near its production capacity, an increase in market share might necessitate investment in additional capacity. If this capacity is underutilized, higher costs will result.
  • Overall profits may decline if market share is gained by increasing promotional expenditures or by decreasing prices.
  • A price war might be provoked if competitors attempt to regain their share by lowering prices.
  • A small niche player may be tolerated if it captures only a small share of the market. If that share increases, a larger, more capable competitor may decide to enter the niche.
  • Antitrust issues may arise if a firm dominates its market.

In some cases it may be advantageous to decrease market share. For example, if a firm is able to identify certain customers that are unprofitable, it may drop those customers and lose market share while improving profitability.

TERMINOLOGY

SOV

A Share of Voice is a brand's or group of brands' advertising weight expressed as a percentage of a defined total market or market segment in a given time period. The weight is usually defined in terms of expenditure, ratings, pages, poster sites etc.

Example-It depends how they are asking.

So let’s say you have an advertiser asking what is your share of voice among young males interested in guitars. Now on the Internet there are 160 sites with a total of 10millions unique (I'm making these numbers up) your site is the 3rd largest with 2millions unique. You would have a SOV of 20%

now let’s say an advertiser wants to spend 200k a month with you on a $20CPM, (that is 10million impressions) now your total impressions a month is 20million impressions. That would mean the Advertiser SOV on your site is 50%

SOV = customer impression/ total impression *100 %

GRP

GRP (short for Gross Rating Point) is an acronym used in advertising to measure the size of an audience reached by a specific media vehicle or schedule. It's the product of the percentage of the target audience reached by an advertisement; times the frequency they see it in a given campaign. For example, a TV advertisement that is aired 5 times reaching 50% of the target audience, it would have 250 GRP = 5 x 50% -- i.e., GRPs = frequency x % reach. It is most commonly used by the bigger companies.

Gross Rating Points could also be applied to other media besides television: radio, print, billboards, the web, and so on. If you attach a United Way banner to your corporate headquarters building, and 3 percent of your target population drives by the billboard twice every day for 120 days, then GRPs = 3 x 2 x 120 = 720.

TRP

A Target Rating Point (TRP) is a measure of the purchased television rating points representing an estimate of the component of the target audience within the gross audience. Similar to GRP (short for Gross Rating Point) it is measured as the sum of ratings achieved by a specific media vehicle of the target audience reached by an advertisement. For example, if an advertisement appears more than once, reaching the entire gross audience, the TRP figure the sum of each individual GRP multiplied by the estimated target audience in the gross audience.

In the case of a TV advertisement that is aired 5 times reaching 50% of the gross audience with only 60% in the target audience, it would have 250 GRPs (= 5 x 50) -- ie, GRPs = reach x frequency - TRP in this case should be 60% out of 250 GRPs = 150 TRPs - this is the rating point in the target, 60% of the gross rating.

  1. Use this formula to determine TRP:
    TRP = GRP x Percentage of target audience
  2. Step2

Determine the numbers. For example, an ad airs with 43 percent of viewers seeing it each of three times it aired. The target demographic is 20 percent of the total audience.

  1. Step3

Find the GRP, which is rate x frequency. In the above example, the rate of viewers (43 percent) x the number of times it is seen (three) = GRP. 43 x 3 = 129 gross rating points.

  1. Step4

Plug the GRP into the formula. GRP (129) x target audience percentage (20 percent) = TRP. 129 x .20 = 25.8 target rating points.

  1. Step5

Interpret the numbers. Generally, TRP should average between 100 and 300 per week. Extremely good would be 400 or more, and less than 100 is ineffective. The score of 25.8 in this example shows an ineffective ad campaign

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