In my previous post, I covered market share, its importance, and how to calculate it. You can access the content [here].
Market share is not only a sign of how well your product is performing relative to its competitors, but by analyzing its components, you can develop strategies to grow it — either by reaching more potential customers or increasing usage among existing ones, ultimately increasing your profits.
Research shows that companies with a high market share are significantly more profitable than their lower-share competitors.
So, to help your product thrive, it’s useful to understand the components of market share and how they can influence your marketing tactics.
How to Decompose Market Share
Market share is determined by two primary factors: brand penetration and coverage.
Market Share = Brand Penetration × Coverage
Brand Penetration = Brand Sales / Total Purchases of Served Customers
Coverage = Total Purchases of Served Customers / Total Market Sales
“Total purchases of served customers” refers to the total purchases of the category made by customers served by your company.
Penetration
For example, to calculate brand penetration: if your customers are all the hospitals in a territory and your product is a knee prosthesis, you can calculate the penetration rate by dividing your sales by the total number of knee replacement procedures performed in those hospitals.
Related to penetration, there’s another valuable metric:
Market Penetration = Users of a Product in the Category / Total Population
Market penetration measures the adoption of a technology and indicates which stage of the innovation diffusion curve you’re in.
Coverage
To determine coverage using the example above, divide the total number of knee replacement procedures performed in the hospitals you serve by the total number performed in the entire territory.
Just like market share, coverage and penetration can be calculated either in units or in revenue — depending on data availability.
How to Use Market Share Components
Brand penetration, market penetration, and coverage help marketers define tactics to grow market share. Often, one of these metrics is underdeveloped or has more potential for growth. Although the three are interrelated, it is possible to define a marketing strategy that prioritizes one component.
In some cases, your growth opportunity lies in brand penetration — increasing usage within currently served accounts. In others, expanding coverage — by reaching new customers — is the right strategy.
We must also consider that growth can sometimes come from expanding the total user base of the category, attracting new customers to the market.
These metrics guide strategic decisions and help managers track success over time.
A Real-World Example
A few years ago, I managed a product line with a capital and disposables business model — commonly known as the razor-and-blades model.
In one key European market, our coverage was satisfactory: the installed base was sufficiently large. However, disposable penetration was very low. The reason? Most users were unfamiliar with the technology and preferred standard manual instruments.
To address this, we launched several marketing initiatives to increase penetration, expanding the number of users within served accounts and increasing usage frequency.
Conclusion
Small companies must understand the importance of market share and related metrics. Ignoring them could leave companies at a disadvantage, lacking a crucial compass to guide strategy.
Although there’s no universal method to measure market share and its components — and sometimes it’s difficult to acquire reliable data — even qualitative use of these metrics can clarify the impact of your business strategies and their execution.
Additionally, analyzing market share trends allows you to evaluate the competitive landscape over time.
So, what’s your strategy to increase market share? Are you focusing on penetration, coverage — or both? Let me know in the comments below.
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