BASIC STRATEGY GUIDE: STEP 9
Activity One (Steps 1-12):
Segment customers, both by size and by need, to identify targets for the Company.
Step 9: Separate the sources of the Company’s change in share.
Whether the Company is gaining or losing market share, compare the Company’s sources of volume change to that of the industry as a whole. Separate the Company’s share change into two parts.
The first part is the share change due to the increase or decrease in the market shares of the customers to whom the Company sold at the beginning of the period. As the Company’s customers gain or lose share in their markets, they pull the Company with them.
The second component is the net volatility the Company realizes compared to the industry as a whole.
This step presents a more instructive picture of the Company’s performance compared to the market as a whole. It delivers an early warning of potential problems or a promise of pending improvements in the Company’s situation. The Company may be gaining share because its customers are gaining share in their markets and pulling the Company with them. This is very good, provided that the Company’s net volatility is also better than the market. For this analysis to promise a better market share in the near future, the Company should have a higher net volatility than do the best competitors in the market.
If the Company is gaining share because its customers gain share, but is losing share on net volatility, it is receiving a warning that things are going to get worse if the Company does not change its strategy.
If, on the other hand, the Company’s net volatility is positive, it has received a clear sign that the Company is on the right track, even if its current customer base is losing market share. The net positive volatility indicates that the Company’s current offering of performance for price is strong enough to gain new customer sales volume to offset some or all of the market share losses that the Company’s customers are suffering.
What to Watch For:
A company must enjoy positive Net Volatility in order to ensure itself of long-term share gain.
The combination of negative Net Volatility and positive overall market share growth due to the growth of the company’s customers is a condition unlikely to last. Eventually, the company’s fast-growing larger customers will abandon it for the strong competitors offering a better value.
A company that enjoys positive Net Volatility, even though its customers may be losing share in their own market, has a favorable prospect for gaining fast growing customers and more market share in the future.
Ensure that the Company develops value propositions that allow the Company to enjoy positive net volatility.
For helpful context on this step:
Symptoms and Implications: