Why Market Share Doesn't Tell the Whole Story

If you've increased market share, that's a good thing - right? Or if your primary competitor has lost share in a market where you mutually compete, that's also good news. Or is it?

Upon first glance, market share appears to be one of the easiest metrics to compute: one company's revenue divided by that of the total market.

But market share is more than a ratio. Marketers that don't construct the story behind the numbers often make important decisions using bad (and inaccurate) assumptions. So before you bust into the CEO's office with your news of share increase ...

Ask questions (that are often overlooked)

• How broadly (or narrowly) do the numbers define the market?
• Is share measured by revenue? Number of units sold? Is the market leader achieving the most share by selling fewer (hence, higher-priced) units than its nearest competitors?
• Is share based on numbers before or after discounts?
• Do the numbers include revenue from maintenance and professional services?

Deeper analysis spawns even more questions, for example:

• Why have the allocations between the market leaders been static for three years?
• Which companies are poised to inject the market with new growth and take additional share?
• What new technologies are leaders exploiting to take the market in a different direction?

Or consider this example: In Western Europe's IT services market, the leading provider's share is growing at a rate less than that of the overall market.  What's going on with them? Are they retracting from certain markets? Or are they not keeping up with innovation?

In this same market (European IT Services) why are companies with the least amount of the market pie gaining share at three times the rate of the market leader?

• Are they investing in opportunities the market leader is overlooking?
• Does acquisition play a role in the share growth of these players? Or are they responding more aggressively to growth in demand?

Why market share analysis is more than a ratio.
Market share is one indicator of how your firm is performing vis-a-vis your competitors. But by itself, market share numbers have limited value if they aren't accompanied by analysis that shows how and why they are changing. 

• For example, have share numbers by a particular company improved as a result of demand for existing technology? Or is the firm seizing more share from emerging technology and new applications?
• Is there a direct relationship between a leader that has gained share and one that has lost share? 

Market share analysis is never a trivial exercise.
Your approach to market share analysis should combine primary surveys with secondary research such as public financial disclosures, industry trade association material and government statistics.

Consult multiple data points to ensure that your statistics are objective and accurate and that quality checks are in place to prevent double-counting.

If you hire an external firm for market share analysis, make sure you question how they arrive at their numbers.