2.05 – Developing Your Market Share Strategy
Developing a Market Share Strategy
Scaling your business is essential for competing with larger, more established brands and increasing your market share. Market share is defined as your sales as a percentage of total sales in your product category. For instance, if you sell $2 million worth of widgets and the world market totals $20 million per year, your market share is 10 percent. Here’s how to effectively develop and implement a market share strategy.
Defining Your Metrics
Before determining your market share, decide on the metrics that matter most to your business. Should market share be measured by dollars earned, units sold, or containers shipped? Choose the metric that best aligns with your product and the data available to you.
Establishing a Benchmark
To increase your market share, start by understanding your current position. Here’s a method for estimating market size and share:
- Estimate the number of customers in your market: For example, determine how many people in your country buy toothpaste or how many businesses in your city purchase consulting services. Resources like Statista and D&B Hoovers provide precise insights on market size, sales, and market leaders in various industries.
- Estimate the average annual purchase per customer: Determine how much each customer buys annually. Check your sales records or industry research for specific data.
- Calculate the total market size: Multiply the number of customers by the average annual purchase to get the total market size. Divide your unit sales by this total to determine your market share.
- Use additional resources: The U.S. Census Data provides information on population and economic trends to aid in forecasting and growth plans.
Understanding your product category is crucial. This is the general grouping of competitive products to which your product belongs. Knowing your product category helps you develop a strategy to build and increase your market share. For example, if you sell specialty teas, you need to determine:
- Are you competing with mass-market brands?
- How do you compete with other specialty tea shops offering a gathering place?
- Are you losing market share to online sellers?
- Are there better growth opportunities as a wholesaler instead of a retailer?
Use reports from trade associations and other market data sources to understand consumption patterns and project consumer behavior.
Doing the Math
To set realistic market share goals, you need to do some calculations. For example, if your goal is to increase market share by 1.5 percentage points and each share point is worth $40,000 in annual sales, you may need to invest an extra $25,000 to achieve this increase. If successful, this could result in an additional $60,000 in sales. However, to be cautious, discount this projection by a risk factor, say 25 percent, reducing the projected gain to $45,000. This helps avoid setting unrealistic expectations and potential credibility issues.
Be realistic about the time needed to reach market share goals. A reasonable projection might see sales increasing gradually over six months, with the full increase realized by the sixth month. For example, if the risk-discounted 1.5 share point increase equates to $45,000 annually, this translates to $3,750 in extra monthly sales from the sixth month onwards, with lower increases in the earlier months.
Market share allows you to compare your progress against competitors over time. If your share grows, you’re winning; if it drops, you’re losing. Base your goals on realistic, measurable actions. For instance, if your goal is to increase share from 5 to 7 percent through product upgrades and special offers, ensure you can attribute the growth to these actions to understand what’s working.
Conclusion
By defining your metrics, establishing benchmarks, and doing the necessary calculations, you can develop an effective market share strategy. Focus on realistic, actionable goals and continuously monitor your progress to stay competitive and drive growth.
