Using unit or dollar market shares in the relative market share calculation

 

Unit market share or dollar market share?

When calculating relative market shares, a decision needs to be made of whether to monitor relative market shares based upon unit sales or based upon revenue share? Most firms would utilize and review both metrics. It is unlikely that a firm would calculate one of these metrics and not the other, as it is a relatively quick and easy calculation to do if the firm has access to market share information. But which one is more important?

With consistent pricing, it does not matter

relative market shares and consistent pricing

If the firm competes in a market where price points are relatively similar between brands, then there will be little difference between unit relative market share and dollar relative market share. This is shown is this first example. As you can see, all brands have quite similar price points and average around $3.00, but all within the range of $2.90 to $3.10.

In this case – of similar pricing tactics – it does NOT matter which approach is taken to calculating relative market share – this is because the measures will be almost identical. As you can see, there is virtually no difference in the two relative market share calculations shown above.

Revenue share is more important when there are price premium positions in the market

However, in markets where there are substantial price differences for relatively similar products (often delivered through strong brand equity and other competitive advantages) then it will be necessary to look more closely at REVENUE market share.

relative market shares and premium pricing

As you can see from this second example where there are significant differences in price points – ranging from $2.00 to $7.50 – this creates a major difference between unit market share and revenue market share, which in turn has a substantial impact on relative market share. In this revised example, it becomes clear that Brand A is more of a discount brand, whereas Brand B is charges a price above the market average. This means, that is terms of revenue market share, Brand B is actually the market leader.

So while Brand A leads on unit sales relative market share (with 1.33), when it comes to relative market share based on revenue they are only at 0.75. Therefore, in this market situation, it would be suggested that revenue-based relative market share would be a more important marketing metric to monitor.

Firms that work towards building strong brand equity and having a price premium for their brands as a result, would probably more interested in relative market share by dollar. This is because their intention is to gain a larger dollar value of the consumer’s purchases. Note: But also refer to the following discussion in regards to experience curve benefits.

Unit share may be more important in FMCG markets, regardless of price positions

Unit relative market share would be generally more important however, in large-scale manufacturing operations (e.g. in fast-moving consumer goods sectors = FMCG’s). This is because scale of production and economies of scale are important factors in maximizing unit margins and therefore profitability. In the above example we are only looking at revenue share, but Brand A could be trying to maximize its production capabilities in order to reduce average unit costs (and increase margin and profitability).

In summary

Generally firms would have access to both unit market share and revenue market share data – so it is relatively easy to calculate and track both metrics anyway.