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.
- Video #67: Overview of Segments Part 2: What to Expect
- Video #68: Overview of Segments Part 3: What to Do
- Video #12: The Definition of Value
- Video #25: Short Explanation of Customer Buying Hierarchy
- Video #36: Probable Priorities for Innovation in Hostile Markets
- Video #37: Performance Innovation Tradeoffs in Hostility
- Video #38: More On Performance Versus Price in Hostility
- Video #55: The Value of Customer Sensitive Cost Reduction
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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 faster than, equal to, or slower than the industry average. If the Company’s customers grew faster than the industry average, the Company gained market share because of its customers’ growth. If the Company’s customers grew slower than the average industry customer did, it lost market share due to its customers loss of share.
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 »
- Worksheet #9: The Components of Company Share Change
- Worksheet #10: Comparison of Company to Industry in Components of Volatility
Company Share Change and Volatility Questions
 | Sources of Company Share Change |
 | Company Volatility Compared to Industry Volatility |
 | Index Comparison of Company and Industry Volatility on the Customer Size/Role Matrix |
- What proportions of the Company’s share change come from customer growth and from net Volatility? (Analysis 26 and Analysis 27)
- How much does Get In, Increase Use, Get Out and Decrease Use volatile volume contribute to the Company’s share change in the industry? (Analysis 28)
- How does the Company’s experience with volatility and its component parts compare with that of the industry? (Analysis 28)
- How much of the Company’s negative volatility is due to the Company’s “failure” rather than due to a “win” by another competitor?
- How does the Company’s results on the size/role segment on negative and positive volatility compare to the industry? (Analysis 29)
- Does negative or positive volatility have a more important influence on the Company’s change in market share? (Analysis 27 and Analysis 28)
- Do the answers to these questions affect the segments the Company would emphasize?
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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