Relative Market Share in Biz Cafe
Ted Mitchell
Market Share Calculation
Your
Firm
Firm BB
Firm CC
Total
Market
Your share
of total
Market
Revenue, R
$8666
$9113
$9696
$27,475
31.54%
Cups, Q
2222
2430
2512
7164
31.02%
Market Share Calculation
Your
Firm
Firm BB
Firm CC
Total
Market
Your share
of total
Market
Revenue, R
$8666
$9113
$9696
$27,475
31.54%
Cups, Q
2222
2430
2512
7164
31.02%
Relative Market Share Calculation
Your
Firm
Firm BB
Firm CC
Total
Market
Average
Size
1/N = 1/3
= 33.33%
Your
share
relative
to
average
Revenue, R
$8666 $9113
$9696
$27,475
$9158
94.62%
Cups, Q
2222
2512
7164
2388
93.06%
2430
Is Relative Market Share Important?
• Why is it so important?
• 1) Measure of competitive strength
• 2) Improved shares get you bonuses and job
promotions
• 3) Trade-off between market share and
immediate sales/profit.
– Firms see it as a cushion against unexpected
competitive moves
– Firms see it as money in the bank
Relative Market Share Theorem
• Implies that Relative Share, Sr,
Ought to be equal to
• 1) Relative Value delivered to the customer
• 2) Relative Satisfaction the customer
experiences
• 3) Relative amount of Effort Put into the
Marketing Mix
Market Share and Customer
Satisfaction
• Relative Market Share, Sr = Relative Customer
Satisfaction, CSr
• Sr = CSr
• Sr = Your Share/Average Share
• CSr = Your Satisfaction/Average Satisfaction
• Biz Café you have measures of customer
satisfaction and average satisfaction
What factors are positively linked
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Having a offering with more value?
An offer with a better mix of the four Ps
Place (what is it in Biz-Café)
Promotion (what is it in Biz-Café)
Product Quality (what is it in Biz-Café)
Price (Better value)
What are the two basic approaches
• to measuring customer value?
• 1) Value is Amount given up compared to benefits
received
• The Difference between Benefits – Amount Paid,
Price
• 2) Value is the Ratio of the benefits received to
the price paid
Value = (Benefits, U) /(Price paid, P)
• BTW Simplest measure is Value = 1/Price
Relative Market Share ought to equal
Relative Marketing Mix effort
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Sr = SFr x Hr x Ur x 1/Pr
Sr = relative market share
SFr = relative # of servers
Hr = relative # hours open
Ur = relative coffee quality
1/Pr = inverse of the relative price
It is a chain of ratios and rates
Relative Market Share Theorem
• Implies that Relative Share, Sr,
Ought to be equal to
• 1) Relative Value delivered to the customer
• 2) Relative Satisfaction the customer experiences
• 3) Relative amount of Effort Put into the
Marketing Mix
• But you normally are tracking the firm’s efficiency
at converting the relative value, satisfaction,
marketing effort into relative share
Relative Market Share Theorem
• In Practice
• 1) Relative share, Sr = k x (Relative Value
delivered to the customer)
• 2) Relative share, Sr = k x (Relative Satisfaction
the customer experiences)
• 3) Relative share, Sr = k x (Relative amount of
Effort Put into the Marketing Mix)
• Where
k = the firm’s ability to convert relative elements
into relative market share
Relative Market Share where k is
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The firm’s conversion efficiency
Sr = k x SFr x Hr x Ur x 1/Pr
Sr = relative market share
k = firm’s conversion efficiency
SFr = relative # of servers
Hr = relative # hours open
Ur = relative coffee quality
1/Pr = inverse of the relative price
• Sample Exam Questions
Exam Question #1
• You have FOUR competitors in your market.
• What is the average market share, Sa?
• Average share, Sa = 1/(4+1) = 20%
Exam Question #2
• The average market share is Sa = 20% and
your market share is 24%.
• What is your share relative to the average
share?
• Relative to average share, Sr = 24%/20%
• Sr = 120%
Exam Question #3
• Your relative market share is Sr = 120%.
• According to the market share theorem what
should be your relative customer satisfaction,
CSr?
• Sr ought to equal CSr
• CSr = Sr = 120%
Exam Question #4
• Your relative market share is Sr = 120%.
• Sr ought to equal CSr
• Your relative customer satisfaction is 130% of
average. Why? How could this be?
Exam Question #5
• You have made some modifications to your
marketing mix in Biz-Café and your offering has
the following attributes:
• Relative Advertising is 80% of average
• Relative Store Hours is 110% of average
• Relative Product quality is 140% of average
• Relative number of server is 90% of average
• Relative price is 90% of average
• What is the predicted relative share?
Exam Question #5
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offering has the following attributes:
Sr = Adr x SFr x Hr x Ur x 1/Pr
Sr = relative market share
CPr = relative total Promotion =0.80
SFr = relative # of servers = 0.90
Hr = relative # hours open = 1.10
Ur = relative coffee quality = 1.40
1/Pr = relative price = 1/0.9 = 1.11
What is the predicted relative share, Sr?
Sr = .8 x.9 x 1.1 x 1.4 x 1.11 = 1.23 = 123%
Exam Question #6
• Predicted relative share, Sr, is
• Sr = Adr x Sr x Hr x Ur x 1/Pr
Sr = .8 x.9 x 1.1 x 1.4 x 1.11 = 1.23 = 123%
• And he average market share is 20%
• What market share are you predicted to have?
• Sr x Sa = S
• 1.23 x 20% = 24.6% share of the market
Any Questions on Relative Share,
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Share, S = Q/Qi or R/Ri
Qi and Ri = Industry Sales and Revenues
Sales Volume, Q = Share x Qi
Average Share, Sa = Qi/N
Sa = Industry sales/ Number of competitors
or Sa = 1/N
Relative to average Share, Sr = S/Sa
or Sr = Share x 1/N
Using Market Share to predict
Sales Volume, Q = (Q/Qi)N x 1/N x Qi