Part 2: Sources of New Market Share
A Comparison of the Concepts of Volatility and Sales Growth
Capsule: Volatility and Sales Growth are important strategic concepts. They differ from one another and co-exist in most markets and companies. Neither depends on the other, though both change market share for a company.
This comparison seeks to clarify each concept. It is divided into several sections:
At the end of this comparison is a series of self tests on Sales Growth and Volatility. The tests present you with a Beginning Period and an End Period and ask you to suggest changes to customer and company results that would produce the requested combination of Sales Growth and Volatility. We provide one answer to each test for reference.
Throughout the comparison, to illustrate the concepts of Volatility and Sales Growth, we use a a consistent set of tables based upon a hypothetical example that we call the
EXPLANATION OF VOLATILITY AND SALES GROWTH
It is useful to separate Sales Growth from Volatility because a company uses different strategic tactics to address issues of Sales Growth and Volatility. A company addresses Sales Growth by changing its mix of Core customer volume, to increase the number of Core customers with high growth rates. It seeks to grow sales faster by changing its customer targets.
On the other hand, to change its Volatility results, a company seeks first to reduce its Negative Volatility and then to produce Positive Volatility. It changes its Volatility results by improving its value proposition, through changes in its product and service package or in its pricing policies.
RULES TO IDENTIFY VOLATILITY
The overall rule to determine that Volatility has occurred in a market is as follows:
At least one customer must change the
percentage allocation of its purchases.
This rule encompasses a customer entering the market, where the customer allocates purchases to new suppliers, and to a customer leaving the market, where the customer removes purchases from its suppliers.
For company Volatility, you must have:
For the market to show Net Volatility you must have either:
SELF TEST ON SALES GROWTH AND VOLATILITY
In the following tests, you will suggest changes to the Base Case table below in order to produce a change in the marketplace or company performance that is requested in the test. To illustrate an answer, we will suggest changes that meet these conditions; however, your answers may differ from ours.
Suggest a change or changes to the Base Case table above that would have the following effect on the
In the next set of tests, we will examine changes