Relative Market Shares – Not Against the Market Leader
Not all firms are interested in bench-marking themselves against the market leader – which is the more common calculation of relative market shares.
Indeed, for many small firms, this may be a relatively meaningless metric. Instead these firms might vary the calculation of relative market share to include just their direct competitors. To further consider this, let’s take the example of the five brands shown here.
Using Relative Market Share for Direct Competitors
In the case above, Brand D and Brand E may be more interested in bench-marking themselves against each other – especially if they are more direct competitors and as they are both relatively small players in the market.
The relative market share between brands D and E would be as follows (and as shown in the diagram):
- Brand D = 6%/4% = 1.50
- Brand E = 4%/6% = 0.67
In this case – and probably more appropriate for most small brands – it would be better to recalculate the relative market share metric to benchmark themselves against firms or brands around their own size.
A more dynamic marketing metric
As you can see, this metric will be more dynamic as a result, and will be more important to track over time. Both of these brands would probably have some form of marketing goal to outperform the other brand, and so this is an easy metric to monitor that progress – as is shown in the line graph of relative market shares between Brand’s D and E over time.
In this case, Brand E is actually holding their unit market share, but because their direct competitor (Brand D) is increasing their market share, the relative market share metric more clearly shows Brand E’s deteriorating competitive position.
This is also highlighted in the following two graphs where the underlying market share information is identical. As you can see, in the first chart of unit market share, the market leader’s position seems strong, whereas relative market share graph indicates that it is declining relative to its major competitor.