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Competitive Analysis Using Market Share Theorem

Competitive Analysis Using Market Share Theorem. Ted Mitchell. Market Share Analysis Competitive Base Marketing. Ted Mitchell. New Shoes Market Size. is Found in Industry News Industry Performance Total Number of Shoes Sold in the Domestic market is 1,100,000 shoes.

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Competitive Analysis Using Market Share Theorem

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  1. Competitive Analysis Using Market Share Theorem Ted Mitchell

  2. Market Share AnalysisCompetitive Base Marketing Ted Mitchell

  3. New Shoes Market Size • is Found in Industry News Industry Performance • Total Number of Shoes Sold in the Domestic market is 1,100,000 shoes

  4. Our Domestic Shoe Business

  5. Your Domestic Market Share Your Sales Volume Total Industry Sales Volume Domestic Market Share = 119,922 Domestic Market Share = 1,100,000 Domestic Market Share = 10.9%

  6. Average Market Share with 10 firms = 10% Your Domestic Market Share Your Sales Volume Total Industry Sales Volume Domestic Market Share = Looking Good! 119,922 Domestic Market Share = 1,100,000 Domestic Market Share = 10.9%

  7. Market Share Predicted byShare of Marketing Effort Market Share Theorem

  8. Market Share Theorem Market Share should be equal to our share of the industry’s marketing effort

  9. Share of Marketing Effort • Share of the total industry promotion budget • Share of the total number of salesmen • Share of the total number of retail stores • Share of total number of shelf facings • Relative product quality • Relative price

  10. Market Share Theorem • If we are spending 25% of the total industry’s promotion budget, • Then we should have 25% of the market share

  11. Share of Voice = Our Total Promotion Budget Total Industry Promotion Budget

  12. Fundamental Theorem of Market Share Our Market Share Ought to be equal to Our Share of Voice • Our Share = Our Total Promotion $ Our Promotion $ + Their Promotion $

  13. Implication • If I increase my share of the marketing effort, • Then I should increase my market share.

  14. Identity is Seldom True • Market Share is almost never equal to the Share of Marketing Effort • Because there are too many variables and inefficiencies

  15. Fundamental Theorem of Market Share Implies a Marketing Efficiency Ratio Our Market Share Ought to be equal to Our Share of Voice Modified by our Conversion Efficiecy MarketShare = (Efficiency Ratio) x (Share of Voice)

  16. (MarketShare) (Share of Voice) Marketing Efficiency Ratio = Fundamental Theorem of Market Share Implies a Marketing Efficiency Ratio Our Market Share Ought to be equal to Our Share of Voice Modified by our Conversion Efficiecy MarketShare = (Efficiency Ratio) x (Share of Voice)

  17. Example of Conversion Efficiency

  18. Our Domestic Shoe Business

  19. From Market Research You Get • Average Expense in Each of Advertising, Consumer Promotion, Sales Force, Dealer Promotions, and the Number of Competitors • Calculate the Size of the Average Voice$2,500,000 • Calculate the Total Size of the Industry’s Voice (Total Industry Promotion Budget)10 firms x $2,500,000 = $25,000,000

  20. From Market Research You Get • Average Expense in Each of Advertising, Consumer Promotion, Sales Force, Dealer Promotions, and the Number of Competitors 1) Calculate the Size of the Average Voice$2,500,000 2) Calculate the Total Size of the Industry’s Voice (Total Industry Promotion Budget)10 firms x $2,500,000 = $25,000,000

  21. From Market Research You Get • Average Expense in Each of Advertising, Consumer Promotion, Sales Force, Dealer Promotions, and the Number of Competitors 1) Calculate the Size of the Average Voice$2,500,000 2) Calculate the Total Size of the Industry’s Voice (Total Industry Promotion Budget)10 firms x $2,500,000 = $25,000,000

  22. Share of Voice = Our Total Promotion Budget Total Industry Promotion Budget $2,760,000 $25,000,000 = 11.04%

  23. Average Market Share with 10 firms = 10%But Share of Voice Predicts 11.04% Your Domestic Market Share Your Sales Volume Total Industry Sales Volume Domestic Market Share = Looking Not so Good! 119,922 Domestic Market Share = 1,100,000 Domestic Market Share = 10.9%

  24. (Market Share) (Share of Voice) (10.9%) (11.04%) Marketing Efficiency Ratio = Marketing Efficiency Ratio = Efficiency of Converting Voice to Market Share Marketing Efficiency Ratio = 98.73%

  25. For Planning and Tracking Purposes • Planned Market Share = Efficiency Ratio x Planned Share of Voice • Planned Market Share = 98.73%(Planned Share of Voice) • Is Our Efficiency Improving from Period to Period?

  26. Fundamental Theorem of Market Share • Market Share is equal to the ratio of Total Marketing Effort divided by Total Industry Effort • Our Share = Our Promotion $ Our Promotion $ + Their Promotion $

  27. Relative Quality of Effort and Promotion Promotion

  28. Relative Impact • Adjust for Quality of Impact Wwhere mean impact is W=1 • Our Share = Wi (Our Promotion $) Wi(Our Promotion $) + Wj(Their Promotion $)

  29. Example • Your firm spends $200,000 in advertising with an impact index of 1.2 • Other Firms spend $800,000 in total with an average impact of 1.0 • What is your expected market share?

  30. Example • Your firm spends $200,000 in advertising with an impact index of 1.2 • Other Firms spend $800,000 in total with an average impact of 1.0 • What is your expected market share? • Market Share = 1.2(200)/1.2(200)+1.0(800) • Market Share = 240/1040 = 23.1%

  31. Example • Actual Market Share = 19% • Expected Market Share = 23.1% • Market Share variance = 4.1% unfavorable

  32. Example • Actual Market Share = 19% • Expected Market Share = 23.1% • Market Share Variance = 4.1% unfavorable • Can be Confounded by Carry over effects, regional mismatches, synergies and local elasticities.

  33. Remember: Market Share Theorem • Market Share should be equal to firm’s proportion of marketing effort to the total marketing effort of the industry in the firm’s Served Market. • Sales / (Industry Sales) = (Marketing Expenses) / (Industry Marketing Expenses)

  34. Any Questions

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