Question 2: Conservatively speaking, how much market share can we take and what’s that worth to our company in terms of finance and other factors?
This is the second post of our market assessment series that explores the questions a company must ask when analyzing a new market. In the first post, we talked about the importance of knowing a market’s current and potential size.
Moving on, we’ll now look into the importance of ascertaining how much share a company can take in a new market in which it is planning to expand.
The most important thing to address here is to stop being driven solely by internal metrics ranging from awareness to margin improvement. As stated in an article on Fast Company, market share is arguably the most important metric when calculating the effectiveness of marketing campaigns.
Many CEOs make the mistake of emphasizing solely on internally focused metrics. This creates a misunderstanding for the company leaders, often making them oblivious to their performance that may be sub par to their competition. This ultimately leaves them vulnerable to being attacked by smaller, more agile businesses that have their finger on the market share pulse.
CEOs also need to realize that projecting market share is to a great extent a subjective matter. This is why its recommended that when entering a new market, you need to know what is the least market share you can take on, and plan your move accordingly. The answer to the question “How much market share can you take?” will be based not only the market size, but factors such as pricing distribution and promotional strategies. As such, you need to take a long, good look at your pricing, promotion and distribution capabilities and strategies. They will ultimately determine how much market share you can take.
Once you determine how much share your company can take in the new market, you need to see how it fits in with your company goals. It boils down to the question “Is it worth the time, money and company goodwill that you’re putting up by entering the new market?” You need to proactively pursue this idea with your CFO and come to a conclusion.
Writing in the Harvard Business Review, Paul Bloom and Philip Kotler provide excellent advice on qualifying the risks associated with gaining share in new market:
- The risk depends on the way you obtain the market share. E.g., you’re less vulnerable if you do it mainly through innovation. If you do it via tactics such as bundling services or tying up a certain distribution channel, other businesses (even governments) will be more likely to attack your business.
- The risk depends on the capabilities of other market players. E.g., if your competitors can’t afford to counter your advertising campaigns, your market share is more secure.
Overall, market share should be tracked in tandem with other key metrics such as revenues and margin. It’s certainly not a good strategy to exist in a market where you have 80% share but are losing money.
Fatima Mansoor is a writer at Aepiphanni, a small business operations and strategy consultancy that exists to help small business owners CREATE | DESIGN | BUILD extraordinary businesses. She is a freelance blogger, specializing in business & entrepreneurship, digital marketing, and health & fitness. Her focus is on creating compelling web content for small and medium businesses form diverse industries. She mostly writes for entrepreneurs and marketing agencies across the US, Australia and UK.
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