Grab the: relative market share template
Which to Use?
Unit Market share or Revenue Market Share?
When calculating market shares and/or relative market shares, a decision needs to be made of whether to monitor relative market shares based upon unit sales or based upon revenue share?
Most firms would utilize and review both metrics.
This is because it is unlikely that a firm would calculate one of these metrics and not the other, as it is a relatively quick and easy calculation to do if the firm has access to market share information.
But which one is more important?
Revenue share is more important when there are price premium positions in the market
In markets where there are substantial price differences for relatively similar products (often delivered through strong brand equity and other competitive advantages) then it will be necessary to look more closely at REVENUE market share.
Let’s look at this market share example below. As we can see, the prices for the five brands varies from a low of $2.00 to a high of $7.50. This means that there are significant differences between the brand quality and their related pricing strategy.
With these large differences in price points, we end up with major differences between unit market share and revenue market share, which in turn has a substantial impact on relative market share (colored in blue).
In this example, it becomes clear that Brand A is more of a discount brand, whereas Brand B is charges a price above the market average. This means, that in terms of revenue market share, Brand B is the market leader – not Brand A with their superior unit market share performance.
So while Brand A leads on unit sales relative market share (with 1.33), when it comes to relative market share based on revenue they are only at 0.75.
Therefore, in this market scenario, it would be suggested that revenue-based relative market share would be a more important marketing metric to monitor.
Firms that work towards building strong brand equity and having a price premium for their brands as a result, would probably more interested in relative market share by dollar. This is because their intention is to gain a larger dollar value of the consumer’s purchases.
Note: But also refer to the following discussion in regards to experience curve benefits.
Unit markets shares are usually more important in FMCG markets, regardless of price positions
Unit relative market share would be generally more important however, in large-scale manufacturing operations (e.g. in fast-moving consumer goods sectors = FMCG’s).
This is because scale of production and economies of scale are important factors in maximizing unit margins and therefore profitability.
In the above example we are only looking at revenue share, but Brand A could be trying to maximize its production capabilities in order to reduce average unit costs (and increase margin and profitability).
Quick Note: When using average market pricing, it does not matter…
If the firm competes in a market where price points are relatively similar between brands, then there will be little difference between unit relative market share and dollar relative market share. This is shown is this first example. As you can see, all brands have quite similar price points and average around $3.00, but all within the range of $2.90 to $3.10.
In this case – of similar pricing tactics – it does NOT matter which approach is taken to calculating relative market share – this is because the measures will be almost identical. As you can see, there is virtually no difference in the two relative market share calculations shown above.
In Summary – The Choice is Mainly Industry Dependent
The choice of more closely unit market share or revenue market share data is often industry and market dependent. Here is a summary of which industries would more likely benefit from primarily relying on one of these market share metrics.
Luxury Goods
In industries such as high-end fashion, watches, jewelry, and luxury cars, revenue market share is more important.
These businesses often sell fewer units than their mass-market counterparts but at significantly higher prices. A focus on unit market share could misrepresent their market position, as their success relies on selling high-priced items rather than a large number of units.
Technology and Electronics
This product category and market usually experiences wide price variations between brands and products, like smartphones, laptops, or televisions, depending on their features, and quality.
For instance, Apple might sell fewer iPhones compared to a budget smartphone brand in terms of units, but due to the higher price per unit, their revenue market share could be much higher.
As a result, the technology industry would be more focused on revenue market share.
Fast-moving Consumer Goods (FMCG)
In FMCGs, the products are often standardized and have similar pricing (e.g. soda, toothpaste, or breakfast cereals), unit market share can be a more valuable measure of market dominance.
Supermarkets
Somewhat similar of FMCGs, supermarkets, especially larger chains, tend to compete more on the number of items sold rather than the total revenue = unit market share, as they deal in high volumes of similarly priced goods.
Software and Cloud Services
Companies like Microsoft, Google, or Salesforce operate in markets where product differentiation and subscription fees can lead to diverse revenue levels.
In these cases, the revenue market share provides a more accurate picture of market influence and success.
Fast Food Industry
In the fast food sector, competition often revolves around the number of items sold. While there may be some variation in pricing, the focus tends to be more on quantity, making unit market share a valuable metric.
Pharmaceuticals
In this industry, a single drug can generate high revenues, even if the total number of units sold is relatively low. Innovative drugs, patented formulas, or specialized medicines often command high prices, making revenue market share a crucial indicator of market position.
Hospitality and Hotels
Some hotels and resorts focus on high-end luxury experiences, while others target budget-conscious travelers. Higher-end establishments might have a lower unit market share (fewer rooms booked), but a higher revenue market share due to their pricing strategies.
Quick Reminder Note
Remember, while revenue and/or unit market shares can be an essential metric in some industries, it should not be the only one used to evaluate market position or business success. Other metrics, including profitability, customer satisfaction, NPS, CLV, and brand health metrics, among others, should also be considered for a comprehensive assessment.
Please review: Difference between Marketing Metrics and Analytics
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