Market Share
Startup Statistic every entrepreneur must know
This is part of the series of articles on TAM, SAM and SOM shared earlier.
What is it?
SOM measures what a startup can become Market share measures what a startup is. We discussed SOM earlier.
Market share is a measure of the percentage of a market that is served by a particular company or product. It is a useful metric for businesses because it helps them understand their position in the market and how their products or services compare to those of their competitors.
In the context of a startup, market share refers to the percentage of a particular market that is served by the startup’s products or services. For example, if a startup has a market share of 20% in the online retail market, it means that 20% of the total sales in that market are generated by the startup’s products or services.
How to measure it?
There are several ways to calculate market share, and the specific method used can depend on the type of market and the data that is available. Some common methods for calculating market share include:
1. Sales revenue: This method involves dividing the startup’s sales revenue by the total sales revenue in the market to determine the startup’s market share. For example, if a startup has a sales revenue of $1 million in a market with total sales revenue of $5 million, the startup’s market share would be 20% ($1 million/$5 million).
2. Units sold: This method involves dividing the number of units sold by the startup by the total number of units sold in the market to determine the startup’s market share. For example, if a startup sells 10,000 units in a market where 100,000 units are sold in total, the startup’s market share would be 10% (10,000/100,000).
3. Customer base: This method involves dividing the number of customers served by the startup by the total number of customers in the market to determine the startup’s market share. For example, if a startup serves 10,000 customers in a market with a total of 100,000 customers, the startup’s market share would be 10% (10,000/100,000).
Market share can vary over time as a company’s sales and market conditions change. In order to accurately measure market share, it is important to use a consistent method and to consider relevant factors such as the size and growth of the market and the competition. Additionally, market share can be calculated for different segments of a market, such as a specific product or service category or a specific geographic region. This can provide a more detailed understanding of a startup’s position in the market.
Other lesser-used methods
There are several other methods that can be used to calculate market share, in addition to the three methods I mentioned previously (sales revenue, units sold, and customer base). Some of these other methods include:
1. Market value: This method involves dividing the startup’s market value (the total value of its outstanding shares of stock) by the total market value of all companies in the market to determine the startup’s market share.
2. Unit market share: This method involves dividing the startup’s unit sales by the total number of units sold in the market, and expressing the result as a percentage.
3. Value market share: This method involves dividing the startup’s sales value by the total value of sales in the market, and expressing the result as a percentage.
4. Customer market share: This method involves dividing the startup’s customer base by the total number of customers in the market, and expressing the result as a percentage.
5. Volume market share: This method involves dividing the startup’s volume of sales (measured in units or dollars) by the total volume of sales in the market, and expressing the result as a percentage.
Different methods may be more appropriate for different types of markets, and the choice of method can depend on the data that is available and the specific information that the market share calculation is intended to provide. Sometimes when the relevant data is not available, proxy data can be used.
Constraints and barriers prevent a startup from reaching its full potential
There are several constraints, barriers, and moats that can prevent a startup from obtaining a full share of the serviceable obtainable market and resulting in a market share they get.
Imagine that a startup called “GreenTech” is trying to enter the market for electric vehicles. GreenTech has developed a new type of electric car that it believes is superior to the vehicles offered by established automakers. However, GreenTech faces several challenges in trying to obtain a full share of the market:
* Financial constraints: Startups often have limited financial resources and may struggle to compete with larger, well-established companies that have more money to invest in marketing and product development. For example, GreenTech may have limited financial resources compared to established automakers, which may make it difficult for GreenTech to invest in the marketing and production capacity necessary to compete with the larger companies.
* Brand recognition: Established brands often have a strong presence in the market and can be difficult for startups to compete with. Customers may be more likely to trust and purchase from a brand they are familiar with, rather than a new and unknown startup. For example, established automakers have strong brand recognition and may be trusted more by consumers than new and unknown startups like GreenTech.
* Network effects: Some products or services become more valuable as more people use them. This can create a barrier to entry for new startups, as they may struggle to attract users when the established product already has a large user base. For example, the electric vehicle market is characterised by strong network effects, as the more people who use electric vehicles, the more infrastructure (e.g. charging stations) becomes available, making electric vehicles more convenient and attractive to new buyers. Established automakers may already have a large user base, making it difficult for GreenTech to attract new users.
* Intellectual property: If a startup’s product or service relies on patented technology or other intellectual property, competitors may be unable to offer a similar product without infringing on the startup’s rights. However, incumbent players may also have strong intellectual property protections that create a moat for them and make it difficult for new entrants like GreenTech to compete. For example, if the established automakers have patented technology or other intellectual property related to electric vehicles, GreenTech may be unable to offer a similar product without infringing on the established automakers’ rights.
* Regulations: Depending on the industry, there may be regulatory barriers that prevent new entrants from entering the market. For example, certain industries may require startups to obtain specific licenses or certifications before they can operate. In the case of GreenTech, the electric vehicle market may be subject to regulatory barriers, such as emissions standards or safety regulations that GreenTech must meet in order to sell its vehicles.
* Customer relationships: Established companies may have strong relationships with customers that can be difficult for startups to compete with. For example, if a company has a long history of providing good service to a particular customer, the customer may be hesitant to switch to a new, untested startup. In the case of GreenTech, established automakers may have strong relationships with car dealerships and other partners that can be difficult for GreenTech to compete with.
How to capture more market share
Often highly successful startups try to reach a position to capture market share from the market or come up with a new value proposition while designing the system and processes that the moat is so strong that no other new entrant or incumbent was easily able to compete. There are a variety of strategies that a startup can use to try to capture more market share. Some examples include:
1. Offering a superior product or service: One way for a startup to capture more market share is to offer a product or service that is superior to those of its competitors in terms of quality, features, or price. This can help the startup stand out in the market and attract more customers.
2. Developing a strong brand: Building a strong and consistent brand can help a startup differentiate itself from its competitors and create a loyal customer base. This can involve developing a clear brand identity and message, and effectively communicating it through marketing and advertising efforts.
3. Expanding into new markets: A startup can also try to capture more market share by expanding into new markets, either by introducing new products or services or by entering new geographic regions. This can help the startup reach new customers and tap into untapped demand.
4. Pursuing partnerships or acquisitions: Partnerships or acquisitions can be a way for a startup to gain access to new customers, technologies, or resources, which can help it capture more market share.
5. Offering exceptional customer service: Providing excellent customer service can help a startup build a positive reputation and encourage customers to continue doing business with the company. This can be especially important for startups, as customers may be more likely to switch to a competitor if they have a negative experience with the startup.
It is important to note that different strategies will be more effective for different startups, and the specific approach a startup takes to capture more market share will depend on its business model, target market, and competitive landscape.
Some Examples:
There are many examples of successful startups that have built strong moats to protect their market position. Here are a few examples:
1. Amazon: Amazon has built a strong moat through its vast e-commerce platform, which offers a wide selection of products at competitive prices. The company has also invested heavily in its fulfilment and delivery infrastructure, which allows it to offer fast and convenient shipping to customers.
2. Apple: Apple has built a strong moat through its brand loyalty and ecosystem of interconnected products, such as iPhones, iPads, and Macs. The company has also invested heavily in research and development to continuously release innovative products that are difficult for competitors to replicate.
3. Netflix: Netflix has built a strong moat through its large library of original content and its subscription-based business model. The company has invested heavily in producing high-quality original content that is difficult for competitors to replicate and has also built a loyal customer base through its convenient streaming service.
4. Google: Google has built a strong moat through its dominant search engine, which has a large market share and is used by millions of people around the world. The company has also invested heavily in its advertising business, which allows it to monetise its large user base.
5. Facebook: Facebook has built a strong moat through its vast user base and its sophisticated targeting capabilities for advertisers. The company has also acquired a number of other social media platforms, such as Instagram and WhatsApp, which has allowed it to expand its user base and further strengthen its moat.
Finally a checklist for Startups
Here is a checklist of considerations for startups that are aiming to capture market share:
Understand your target market: Know who your customers are and what they need or want. Conduct market research to identify potential customers and gather insights into their preferences and buying habits.
2. Develop a unique value proposition: Determine what sets your product or service apart from those of your competitors. Identify the key benefits and features of your offering, and communicate these clearly to potential customers.
3. Identify your target audience: Determine which segments of the market you want to target, and develop a marketing and sales strategy to reach them. This might involve identifying specific channels or tactics that are most effective for reaching your target audience.
4. Develop a marketing plan: Create a comprehensive marketing plan that outlines how you will reach and engage with potential customers. This might include tactics such as advertising, public relations, social media marketing, content marketing, or event marketing.
5. Build a strong brand: Develop a strong and consistent brand that reflects the values and mission of your company. This might involve creating a logo, developing brand guidelines, and creating a cohesive brand identity across all marketing materials.
6. Invest in research and development: Continuously invest in research and development to improve your product or service and stay ahead of the competition. This might involve conducting customer research, prototyping new products, or investing in new technologies.
7. Optimise your pricing: Determine the optimal price point for your product or service based on factors such as the value it provides to customers, the cost of production, and market demand.
8. Build a strong team: Assemble a team of talented and dedicated individuals who are committed to helping your startup succeed. This might involve hiring employees, working with freelancers, or partnering with other companies.
9. Foster a culture of innovation: Encourage creativity and innovation within your team to help your startup stay ahead of the competition. This might involve setting aside time for brainstorming sessions, encouraging employees to come up with new ideas, or offering training or development opportunities.
10. Establish partnerships and collaborations: Seek partnerships and collaborations with other companies or organisations that can help your startup reach new customers or tap into new markets.
11. Leverage social media and digital marketing: Use social media and other digital marketing channels to reach and engage with potential customers. This might involve creating and managing social media accounts, running paid social media campaigns, or creating targeted email marketing campaigns.
12. Monitor and analyse your results: Regularly monitor and analyse the results of your marketing efforts to identify what is working and what is not. Use this information to continuously refine and improve your marketing strategy.
13. Provide excellent customer service: Prioritise customer service and make it a top priority for your team. This might involve offering support through various channels such as email, phone, or social media, and responding promptly to customer inquiries or complaints.
14. Stay up to date with industry developments: Keep track of industry trends and developments, and stay abreast of changes in the market. This can help you identify new opportunities and stay ahead of the competition.
© Sameer Babbar
sbabbar@sameerbabbar.com
Disclaimer: This is for information only. It does not take into account your own objectives, financial situation or needs. Author, his company his associates, his directors, his staff, his consultants, and his advisors do not accept liability for any loss or damage, including without limitation, any loss, which may arise directly or indirectly from the use of or reliance on the information provided.