Part 3: Target Segments
Company Share Change and Volatility
Capsule: The Company's market share change is the net result of five factors expressed as a percentage of annual sales: its customers' growth relative to their markets, the Get In and Increase Use forms of Positive volatility and the Get Out and Decrease Use forms of Negative volatility. For most companies, market share shifts because of the company's good results on volatility compared to everyone else in the industry. In a fast growing market, this good performance means beating the industry on Positive volatility. In slower growing and highly competitive markets, though, this good performance may mean having lower Negative volatility than the average competitor in the market.
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These analyses ask you to separate the change in your market share into five component parts. (See Symptom: "While still growing some competitors are losing share.") The first part is the share change due to the growth in purchases by the Company's customer base as it existed at the beginning of the analysis period. This set of Company customers grew their purchases at a rate that was greater than, equal to, or less than the industry average. If the Company's customers grew at a rate greater than the industry average, the Company gained market share because of its customers' growth. If the Company's customers grew at a rate slower than the average industry customer did, it lost market share due to customer growth.
The second and third components of the Company's market share change are the forms of the Company's Positive volatility." Get In" volatile volume is positive volatility that occurs when the Company enters a new customer relationship, one where previously it had no sales. "Increase Use" volatile volume is Positive volatility where the Company increases its penetration of a previously existing customer relationship. With an "Increase Use" event, the existing customer allocates a greater percentage of his purchases to the Company than he has in the past. A fast growing market will have Positive volatility that is high, above fifteen percent per annum. In these high growth markets, you want to perform especially well compared to the industry in the components of Positive volatility.
In the fourth and fifth components of its market share change, the Company compares its Negative volatility to the market as a whole. As with Positive volatility, Negative volatility exhibits two forms. "Get Out" volatility represents volume lost when a customer removes the Company entirely from its relationship. "Decrease Use" volatility is sales volume the Company loses as a customer decreases the proportion of his purchases from the Company.
In an average or highly competitive market, you want to perform well on the components of Negative volatility. These markets have low total volatility, below ten percent per annum, and a higher percentage of "failure" as the cause of volatility. (See Symptom: "Customers are adding suppliers because incumbent suppliers failed them.")
You are particularly interested in Negative volatility. (See Perspective: "The Real Reason Market Share Matters.") You should understand the negative volatility that is due to the Company's "failure." You should correct "failures" of the Company, even in a growing market. Eventually, any market's growth slows and then these "failures" prevent the Company from gaining share it would otherwise be able to gain by losing fewer customers than the best competitors in the market lose.
Company Share Change: Industry Examples »
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Company Share Change and Volatility Questions |
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Analysis 26 |
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Analysis 28 |
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Analysis 29 |
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Basic Strategy Guide Users Return to: Step 9
Basic Strategy Guide Users Return To: Step 10
or Go To: Step 11
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| Summary Points | Next: Final Targets |