Market share: The Value of Knowing the Numbers

gigcmo
06/09/2022

When going into a new market or launching a new product or service, it's always important to consider alternative future possibilities. It is surprising how few firms do so when assessing potential market share. In addition to considering the Total Addressable Market, businesses should also consider their Serviceable Addressable Market and their Serviceable Obtainable Market when planning their business development strategy.
 
Market share is not simply a matter of knowing the total market size; it's also essential to determine what market share is realistically attainable for your business. We break down the process into the following parts:

  • The Total Addressable Market (TAM), also referred to as the total available market, is the overall revenue opportunity available to a product or service if a business achieves 100% market share.
  • Serviceable Addressable Market (SAM) refers to the specific potential audience for your product or professional service. This metric is the maximum market value your company could potentially have.
  • Serviceable Obtainable Market (SOM) is also known as market share and is the percentage of the market that the company can realistically obtain.

Understanding your market share in real terms

Knowing these numbers will allow businesses to perform different scenarios of future business growth, helping business leaders make meaningful business development plans and more informed decisions that support the company's long-term financial and business goals.
 
This type of market share analysis will help you to answer questions like:

  • Are potential customers, people or firms who are new to the market?
  • Are they individuals or firms who may switch from a competitor? 
  • How many people or firms are leaving the market altogether?
  • Why are people or businesses coming to me?

The Corporate Finance Institute used the example of the consumer foods market. In 2014 the market value was estimated at 200 billion Euros. That market included food as well as alcoholic and non-alcoholic drinks. The alcoholic drinks industry's SAM was 49 billion Euros. The section of the alcoholic drinks industry that one manufacturer serves is the SOM for that individual company - a far cry from the total addressable market.

A more informed business development strategy

Whether business-to-consumer (B2C) or business-to-business (B2B), businesses that do not keep track of these figures are unlikely to know what they should do to reach the right people or companies. What our marketing experts often see happening with new businesses is at the outset, it may not show in their results whether they have this data or not. They will likely gain some traction if they're small fish in a big pond. However, there will become a point - quicker than they might imagine - where growth becomes less possible unless they're fully aware of who is coming to them, why and who else is out there.
 
Without proper market analysis, businesses can invest heavily in products or services that customers do not want, leaving them unable to recoup their costs. Of course, there are cases where industries are breaking new ground and where it's challenging to calculate the SOM. The Internet of Things (IoT) has been a prime example of an area where investors have made difficult predictions over time that is largely conjecture.

How to analyse your market share and grow your business

Analysing your market share is a combination of precise details alongside broad hypotheticals. In today's world of data, it's easier to be more accurate about figures and other elements contributing to business opportunities and forecasts. However, as we know from the global pandemic, there's only a certain amount that figures can predict. 
 
This is where hypotheticals can be extremely helpful - creating scenarios for best and worst-case outcomes to ensure you're prepared. Different marketing experts will advise on different approaches. However, it's a combination of tools, techniques and experience-led analysis. 
 
Tools you can use include:

  • Online research
  • Financial reports
  • Market research 
  • Interviews and in-person visits to other companies and people in the industry

Approaches you can take include:

  • Talking to and surveying new customers and for those who have chosen to leave you - front-line staff will have great granular insights
  • Compile existing secondary market research such as information from adjacent markets, market leaders and competitors.
  • Analyse from the top-down by taking a metric (like population) and using types of market segmentation according to different factors such as price, age, and demographic.
  • Analyse from the bottom-up by determining production specifics and then calculating that number across the market. (Start with one client, for example, and work up.)
  • Verify your assumptions with the help of experts - although it's important to recognise that some information may be confidential.
  • Calculate market sensitivities - remember that things are constantly changing, and new markets are susceptible to influential factors, such as price and the economy.

If you would like to speak to experienced marketing experts about analysing your market share and target audience, as well as improving total sales, contact the team at gigCMO.