1. Market Share Metrics II This module covers decomposition of market share, share of penetration, usage index, share of requirements, brand and category penetration, brand development index (BDI), and category development index (CDI). Author: Paul Farris Marketing Metrics Reference: Chapter 2 © 2010-14 Paul Farris and Management by the Numbers, Inc.

2. Market Share Most business people know the common definition of market share as shown below. M ARKET S HARE Definition Market Share = Brand sales / Sales of all brands in a market. This definition is context dependent. That is, one calculates market share of units or dollars, market share of a particular region or segment, market share for a particular time period, etc. 2 MBTN | Management by the Numbers Insight It is essential to remember that when calculating market share, one must compare apples with apples with regard to the market (geographic, demographic or other definition), sales definition (units or dollars), time period (particular year, month, etc.). Otherwise it is at best meaningless, or more likely, misleading and inappropriate.

3. Components of Market Share C OMPONENTS OF M ARKET S HARE Insight By breaking down market share into these three components, we can measure a company’s performance in each component to better understand where to focus efforts to improve sales. Definition Now let’s consider an alternative definition for market share, one that breaks it down into three components: Share of Penetration Usage Index Share of Requirements Alternative Definition of Market Share = Share of Penetration x Usage Index x Share of Requirements 3 MBTN | Management by the Numbers

4. Measures of Market Penetration Let’s start by reviewing the two primary definitions of market penetration and then proceed to the definition of share of penetration used in the market share definition. M EASURES OF M ARKET P ENETRATION Definitions Category Penetration = The number of people/households who bought (at least once in the time period) any brand in the category divided by the defined population. Brand Penetration = The number of people/households who bought (at least once in the time period) the specific brand of interest divided by the defined population. 4 MBTN | Management by the Numbers Insight Selecting the appropriate time period is critical for making the metric meaningful. Consider the difference in brand penetration for a brand of shampoo calculated for a particular day vs. over a full year.

5. Share of Penetration Suppose over the period of a month, 500 households bought BigBomb brand flea foggers. During that same month, 2,000 households bought at least one product from any brand in the flea fogger category. The Share of Penetration for BigBomb flea foggers would be 500 / 2000, or 25%. Share of Penetration answers the question, “what is your brand’s share of households that purchase a brand in this product category?” S HARE OF P ENETRATION Definition Share of Penetration = Brand Penetration / Category Penetration. Or the number of households that buy your brand divided by the number of households buying any brand in the category during time period. 5 MBTN | Management by the Numbers

6. Usage Index Suppose over the period of a year, the average consumption of households that bought ShowerFun brand shampoo was 6 15oz bottles, compared to the average consumption of households that bought any brand of shampoo was 4 15 oz bottles. The Usage Index for households buying ShowerFun brand shampoo would be 6 / 4, or 1.5. This index is greater than 1.0 if the brand has a disproportionate percentage of heavy users. U SAGE I NDEX Definition Usage Index = Average consumption (in standard units) of households that buy your brand divided by the average consumption of households buying any brand in the category at least once during the relevant time period. 6 MBTN | Management by the Numbers

7. Share of Requirements Suppose that last month, the total unit purchases for households that bought AloeHa brand sunscreen was 1,000,000 bottles of AloeHa. Those same households purchased 2,000,000 bottles of sunscreen in total (presume same size bottle). What is the Share of Requirements? The Share of Requirements is (1,000,000 / 2,000,000), or 50%. Answers the question, “What is your brand’s share of total purchases (or “requirements”) of households that purchased your brand?” S HARE OF R EQUIREMENTS Definition Share of Requirements = Total unit (or $) purchases of the brand by households that buy the brand divided by the total unit (or $) purchases in the category by those households during the relevant time period. This amounts to market share among buying households. 7 MBTN | Management by the Numbers

8. Market Share: Sample Problems M ARKET S HARE : S AMPLE P ROBLEMS Question 1: Mr. SugarPuff brand cereal has a share of penetration of 20% among households in the town of Sweetville. The usage index of households in Sweetville that purchase Mr. SugarPuff is 1.2. Its share of requirements is 50%. What is the Market Share for Mr. SugarPuff brand cereal in Sweetville? 8 MBTN | Management by the Numbers Answer: Market Share = Share of Penetration x Usage Index x Share of Requirements Market Share = 20% x 1.2 x 50% Market Share = 12%

9. Market Share: Sample Problems M ARKET S HARE : S AMPLE P ROBLEMS 9 MBTN | Management by the Numbers Answer: Market Share = Share of Penetration x Usage Index x Share of Requirements Therefore, Share of Penetration = Market Share / (Usage Index x Share of Requirements) Share of Penetration = 6% / (0.75 x 40%) =.06 /.30 Share of Penetration = 20% Question 2: EatWheats brand cereal has market share in Urbanopolis of 6%. The usage index for households in Urbanopolis that purchase EatWheats cereal is 0.75. Its share of requirements is 40%. What is the Share of Penetration for EatWheats brand cereal in Urbanopolis?

10. Market Share: Sample Problems M ARKET S HARE : S AMPLE P ROBLEMS Question 3: On average, for all brands in a particular market, what will the Usage Index always be? A.2.0 B.1.5 C.1.0 D.0.5 10 MBTN | Management by the Numbers Insight Since usage index for a particular brand is a measure of whether those who purchased a brand are heavy users (>1.0) or light users (<1.0), the average is by definition 1.0. Only in Lake Woebegone is everyone above average!

11. Brand Development Index (BDI) For example, Doodle pencils has sales of 10 pencils per-capita in Missouri and 8 pencils per-capita in the U.S. as a whole. Doodle’s BDI in Missouri is 125 % or 1.25 (10 / 8). Jamie Sharper, the salesperson for the Missouri region, says he deserves a raise of at least 10% due to his superior performance compared to the average salesperson in the U.S. Based on this BDI analysis, it would seem like Jamie has a good point. What else might we want to consider? B RAND D EVELOPMENT I NDEX 11 MBTN | Management by the Numbers Definition Brand Development Index (BDI) = Brand sales ($ or units) in a specified segment compared to sales of brand in an entire market, usually on a per-capita (per person) basis.

12. Category Development Index (CDI) For example, if there are 30 pencils per-capita sold in Missouri compared to 25 pencils per-capita in the U.S. as a whole, the pencil CDI for Missouri would be 120% or 1.2 (30 / 25). C ATEGORY D EVELOPMENT I NDEX 12 MBTN | Management by the Numbers Definition Category Development Index (CDI) = Category sales ($ or units) in a specified segment compared to sales of the category in the entire market, usually on a per-capita basis. Insight Therefore, an improved measure of performance for the salesperson would be BDI / CDI for the region. For Doodle in Missouri, this is 125% / 120%, or approximately 104%. Using this measure we see that the salesperson is doing better than average, but only 4% better, not 25% better.

13. F URTHER R EFERENCE 13 Further Reference MBTN | Management by the Numbers Marketing Metrics by Farris, Bendle, Pfeifer and Reibstein, 2 nd edition, chapter 2. MBTN Market Share Metrics I which introduces market share calculations, discusses market definition, as well as covering relative market share and market concentration.