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December 1996 Volume 1.5
Static versus Dynamic
One of the key metrics used in the Customer Value
Management approach is market share. While it might seem likely
that most businesses would already be tracking market share, I have
found that this is not the case. This is especially true where the
business may have formerly operated in a monopoly market, or a tightly
regulated market. Where market share is being tracked, then often
only one type of market share is being tracked.
Each approach provides a different perspective which
provide valuable information for managers. One senior manager of
an American local phone company told me that he wanted to only have
one measure of market share so there would be no discussion about
the different results. What he wanted to do was a bit like the person
who wanted to redefine the value of p (the ratio of a circle's circumference
to its diameter), as 3 rather than the actual ratio of 3.1472....
While it would be nice to have one measure of market share, that
is not the way things are.
Two of main market share measures are Static and Dynamic.
Static refers to the historical position. For an office equipment
company this would be the number or dollar amount of their installed
base of say photocopiers compared to the competition, while for
a financial institution it would be their total lending portfolio
compared to the competition. The Dynamic market share looks at the
sales occurring in a recent time period. For an office equipment
company this would be their share of photocopier sales in the previous
3 month period, while for a financial institution it would be their
share of loans made for the lending market in the last 3 months.
Other ways of market share relate to the metric used
for tracking share. e.g. dollars, customers, or minutes. These would
be selected based on the nature of the product or service. The extent
of variable product used is another factor. e.g. for the photocopier
example this would be the amount of toner used or for a hired photocopier
the pages photocopied.
Sharing the Internet
Again we look at the mythical Internet Service Provider
companies W, X, Y, and Z. Where have they ended up in terms of market
share?
Company Z is occupying the low value position on the
Value Map, while both company X and company Y are in the fair value
position. Company W has adopted the high value position for the
residential market with a no frills service. The entire market is
growing rapidly at 2,000 customers a month.
In terms of static share company Z has 600 customers.
X and Y have both done fairly well, attracting 10,000 customers
each. The restricted service provided by company W appeals only
to a limited number of people but they have successfully attracted
5,000 customers. So we have a total market size of 25,600. The customer
market shares for each company are then:
Company Customers Marketshare
W 5,000
20%
X 10,000
39%
Y 10,000
39%
Z
600 2%
Looking at these market share results, it looks as if X and Y have
been equally successful. The picture changes though when we look
at market share on a revenue basis. W and Y charge their service
on a flat rate basis of $30 and $44 a month respectively. This gives
them monthly revenues of $150,000 and $440,000. As company X charges
by the hour ($2.50), it has attracted mainly low usage customers
who use the Internet on average, 10 hours a month. The resulting
revenue for X is $250,000. Company Z's monthly charges are always
a bit of a mystery, but if we assume they average out at $60 a month,
this gives them a total revenue of $36,000. More
The revenue based market shares are then :
Company Revenue
Market Share
W 150,000
17%
X 250,000
28%
Y 444,000
50%
Z 36,000
4%
So we see that Company Y has been the most successful
in attracting valuable customers. The dynamic market share position
is different again. Company W's restricted service looks like a
good deal, but when customers use it they are frustrated. So although
W signs up 400 customers a month it loses 100 of its existing customers,
giving a net growth of 300. Much the same situation applies for
X, with 800 customers joining every month and 200 leaving when they
find the charges are very high if they use it often. Poor old Z
gets 50 new customers every month but the same number leave. The
remaining growth of 1100 goes to Y. The Dynamic customer and revenue
market shares are then :
Company Customers Customer Revenue
Revenue
Market
Market
Share
Share
W 300
15% 9,000 12%
X 600
0% 15,000 21%
Y 1100
55% 48,400 67%
Z
0 0%
0 0%
Each way of looking at market share provides a valuable
view which helps managers decide which knob to turn.
Melbourne's Cuisine
Rhonda K has asked me to comment on some of the restaurants
I have been frequenting in Melbourne. A recent Sunday saw me in
St Kilda at Sax's Cafe. A very pleasant sardine and salad dish was
complemented by the robust house red.
Regards,
Rodger Gallagher
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