Relative market share

Relative market share compares a brand’s share with that of its largest competitor. The ratio adds competitive context that absolute share lacks: 20% may indicate leadership in a fragmented market or a distant second place in a concentrated one. There is therefore no meaningful benchmark that applies across all industries.

When to use it

• Answer the key performance question: “How well are we developing our market share in comparison to our competitors?”
• Include the KPI in the marketing and sales perspective.
• Compare product–market positions with different absolute sizes.
• Track whether competitive strength is improving, while retaining profitability, customer and market-structure measures.

Origins

Relative market share emerged in strategy work during the 1960s and was popularised by the Boston Consulting Group through the growth–share matrix. BCG used it as a proxy for competitive strength, linking high relative share to experience effects and potential cost advantage. The metric’s origin is therefore tied to a specific portfolio theory; the assumed relationship between share, cost and cash generation should be tested rather than treated as universal.

What it is

Perspective: Marketing and sales perspective.

Key performance question: How well are we developing our market share in comparison to our competitors?

The numerator is the brand’s share in a precisely defined product–market; the denominator is the share of its largest competitor. If the brand itself is the market leader, use the next-largest competitor as the comparator. Values above parity indicate leadership, while values below parity indicate that the comparator is larger.

Relative share became popular because market leadership was associated in some settings with scale, accumulated experience and profitability. However, high share does not automatically generate cash: margins, price, capital intensity, differentiation, regulation and the cost of acquiring or defending share all matter.

In BCG’s growth–share matrix, relative market share represents competitive strength and market growth represents attractiveness. High-share offers in high-growth markets are “stars”; high-share offers in low-growth markets are “cash cows”; low-share offers in high-growth markets are “question marks” or “problem children”; and low-share offers in low-growth markets are “dogs.” These labels are portfolio prompts, not investment instructions.

Source: Boston Consulting Group (www.bcg.com)

How to use it