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

Measurement

Define the market boundary, period, geography, channel and unit of share. Decide whether revenue, units, users, capacity or another basis matches the economics of competition. Use the same definition for the brand and competitor.

Data collection method

Use audited company disclosures, channel data, syndicated market research, regulatory data or a documented bespoke estimate. Reconcile differences in product coverage and timing before calculation.

Formula

If the brand has 20% and its largest competitor has the same share, the ratio is 1:1. If the competitor has 60%, the ratio is 1:3, indicating a weaker relative position. If the competitor has 5%, the ratio is 4:1, indicating a stronger relative position. In the traditional BCG matrix, the displayed scale is logarithmic rather than linear.

Frequency

Annual measurement may be sufficient in stable markets; fast-moving markets may require quarterly or more frequent updates. Avoid reacting to noise created by seasonality or incomplete data.

Source of the data

Company annual reports and credible market research are common sources. Distributor, retailer or platform data may improve timeliness if coverage and definitions are understood.

Cost/effort in collecting the data

Effort is low when comparable share data already exist and high when the organisation must define the market, estimate private competitors or commission original research. Good benchmark data can be expensive.

Target setting/benchmarks

Set targets against the organisation’s strategy and the economics of the category. External examples can inform ambition, but the meaningful benchmark is the relevant competitor under the same market definition. Pair the target with margin and value-creation safeguards.

Example

Consider a market for small urban cars:

A-One sells 7,500 cars annually, while market leader Zipper sells 25,000. Its unit-based relative market share is 7,500/25,000 = 0.30. The same result follows from absolute shares: A-One has 7,500/50,000 = 0.15 and Zipper has 25,000/50,000 = 0.50; therefore 0.15/0.50 = 0.30.

By revenue, A-One produces $187.5 million and Zipper $375 million. The ratio is $187.5m/$375m = 0.5. A-One’s higher average selling price makes its revenue-relative position stronger than its unit-relative position. The difference is informative, but neither measure alone reveals profit.

Top practical tip

Plot relative share over time beside total market growth, price, margin and the competitor set. This distinguishes genuine competitive gain from a shrinking denominator, market redefinition or unprofitable volume.

Top pitfall

Do not maximise share without an economic model. A 70% position in a loss-making market may destroy value, and revenue share can rise while unit share, margin or customer quality deteriorates. State the market boundary and track units, revenue, price, contribution and profit together.

Further reading

David J. Reibstein, Neil T. Bendle, Paul W. Farris, Phillip E. Pfeifer, Marketing metrics: understanding market share and related metrics, in Marketing Metrics: 50+ Metrics Every Executive Should Master, Prentice Hall, 2006.

Fast Company Staff, Why Market Share is the Most Important Metric, Fast Company, 8 August 2005.

Boston Consulting Group: www.bcg.com