Marketing Metrics - Basic Concepts
Rahul Andrew (19221024)
1. Market share
Market share is the percentage of a market accounted for by a specific entity. "Marketers
need to be able to translate and incorporate sales targets into market share because this
will demonstrate whether forecasts are to be attained by growing with the market or by
capturing share from competitors
Formula is calculated by dividing the volume of goods sold by a particular firm by the
total number of units in the market.
2. Relative market share
Relative market share indexes a firm's or a brand’s market share against that of its leading
competitor. Market concentration, a related metric, measures the degree to which a
comparatively small number of firms accounts for a large proportion of the market.
Formula is calculated in terms of revenues or market share. It is calculated by dividing
your own brand's market share (revenues) by the market share (or revenues) of your
largest competitor in that industry.
While absolute market share shows how much growth potential a company has within its
industry, relative market share offers insight on how to identify and outperform specific
competitors.
3. Market concentration
n economics, market concentration is a function of the number of firms and their
respective shares of the total production in a market. Alternative terms are industry
concentration and seller concentration.
It is to measure the extent to which market shares are concentrated between a small
number of firms. It is often taken as a proxy for the intensity of competition.
It is calculated by squaring the % market share of each firm in the market and summing
these numbers
4. Market Penetration
Market penetration refers to the successful selling of a product or service in a specific
market. It is measured by the amount of sales volume of an existing good or service
compared to the total target market for that product or service.
It is a measure of how much a product or service is being used by customers compared to
the total estimated market for that product or service. Market penetration also relates to
the number of potential customers that have purchased a specific company's product
instead of a competitor's product.
5. Brand Penetration
Brand penetration is defined as the number of people who buy a particular brand over a
specific period of time divided by the size of the concerned market's population. Brand
penetration is a measure of adoption of a brand or the number of sales of a brand as
compared to the total theoretical market for that brand.
To calculate market penetration, the current sales volume for the product or service is
divided by the total sales volume of all similar products, including those sold by
competitors. The result is multiplied by 100 to move the decimal and create a percentage.
6. Penetration rate
Penetration share, in contrast to penetration rate, is determined by comparing that brand's
customer population to the number of customers for its category in the relevant market as
a whole. Here again, to be considered a customer, one must have purchased the brand or
category at least once during the period.
A good penetration rate can be average market penetration for a consumer product is 2 to
6%, while business products can range anywhere from 10 to 40%
7. Share of Requirements:
A given brand's share of purchases in its category, measured solely among customers
who have already purchased that brand. Also known as share of wallet.When calculating
share of requirements, marketers may consider either dollars or units. They must ensure,
however, that their heavy usage index is consistent with this choice. The best way to
think about share of requirements is as the average market share enjoyed by a product
among the customers who buy it.
Unit Share of Requirements (%) = Brand Purchases (#)/Total Category Purchases by
Brand Buyers (#)
Revenue Share of Requirements (%) = Brand Purchases ($)/Total Category Purchases by
Brand Buyers ($)
Share of requirements is also useful in analyzing overall market share. Market Share =
Penetration Share * Share of Requirements * Heavy Usage Index.
Share of requirements can thus be calculated indirectly by decomposing market share.
Share of Requirements (%) 5 Market Share (%)/[Penetration Share (%) * Heavy Usage
Index (I)]
8. The heavy usage index is a measure of the relative intensity of consumption. It indicates
how heavily the customers for a given brand use the product category to which that brand
belongs, compared with the average customer for that category.
Heavy Usage Index (I) = Average Total Purchases in Category by Brand Customers (#,
$)/Average Total Purchases in Category by All Customers for That Category (#,$)
The heavy usage index, also called the weight index, yields insight into the source of
volume and the nature of a brand's customer base. Heavy Usage Index: The ratio that
compares the average consumption of products in a category by customers of a given
brand with the average consumption of products in that category by all customers for the
category.
9. Decomposing Market Share
The concept of market share can be decomposed into three sections: Firstly, we can look
at market share as the overall share of the market as compared with competitors. This can
be an absolute percentage, but can likewise be expressed as a relative number. For
instance, in the BCG-matrix, we consider relative market share. Secondly, market share
can be understood as share of wallet. This means the share of the target consumers’ total
expenditure. Thirdly, market share may refer to share of voice, which is the measure of a
company’s advertising expenditure compared with competitors.
The point of measuring market share is to see how effective competitive strategies are: if
share is increasing, the strategy is working, whereas if share is falling the competitors are
using more successful approaches. Of course, a growth in sales does not necessarily mean
that market share is also increasing – if the market is growing, sales will increase even if
share of market does not, and in a rapidly growing market a firm can be increasing sales
while losing market share, as competitors’ sales grow even faster. That is why growing
sales can lead managers into a false sense of security, imagining that all is well when in
fact competitors are forging ahead.
10. The brand development index or BDI quantifies how well a brand performs in a
market, compared with its average performance among all markets.[1] That is, it
measures the relative sales strength of a brand within a specific market (e.g., the Pepsi
brand among 10–50-year-olds). The purpose of the BDI metric is to quantify the relative
performance of a brand within specified customer groups. The index helps marketers
identify strong and weak segments (usually demographic or geographic) for individual
brands.[1]
The BDI is especially useful in conjunction with the category development index (CDI).
It can be used in deciding the allocations in the media to which a specific brand is
advertised. It can also be used to determine how much advertising, or promotion effort is,
or should be put in that specific market.
BDI: An index of how well a brand performs within a given market group, relative to its
performance in the market as a whole.[1]
BDI (I) =
[Brand sales to group (#) ÷ Households in group (#)] ÷
[Total brand sales (#) ÷ Total households (#)]
Note: Although defined here with respect to households, these indexes could also be
calculated for customers, accounts, businesses, or other entities.
11. The category development index (CDI) measures the sales performance of a category
of goods or services in a specific group, compared with its average performance among
all consumers.[1] By definition, CDI measures the sales strength of a particular product
category within a specific market (e.g., soft drinks in 10–50 year olds). The purpose of
the CDI metric is to quantify the relative performance of a category within specified
customer groups. The CDI helps marketers identify strong and weak segments (usually
demographic or geographic) for categories of goods and services.[1]
The CDI is useful in all marketing strategies when used with the Brand Development
Index (BDI). The CDI can give vital data for marketers to allocate advertising to specific
areas maximizing product category knowledge and profit.
CDI: An index of how well a category performs in a given market segment, relative to its
performance in the market as a whole.[1]
CDI (I) =
[Category sales to group (#) ÷ Households in group (#)] ÷
[Total category sales (#) ÷ Total households (#)]
Note: Although defined here with respect to households, these indexes could also be
calculated for customers, accounts, businesses, or other entities
