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Market Share: Share of Total Sales vs Relative Share

Market Share: Share of Total Sales vs Relative Share. Ted Mitchell. WORDS GET IN THE WAY!. What is your definition of the term “markup”? It is slang for the phrase The percentage of the dollar markup over the selling price. WORDS GET IN THE WAY!.

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Market Share: Share of Total Sales vs Relative Share

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  1. Market Share:Share of Total Salesvs Relative Share Ted Mitchell

  2. WORDS GET IN THE WAY! • What is your definition of the term “markup”? • It is slang for the phrase • The percentage of the dollar markup over the selling price.

  3. WORDS GET IN THE WAY! • What is your definition of “the dollar markup”? • Selling Price - Cost per Unit = Dollar Markup • Dollar markup = P-V What is your definition of “the percentage markup on price”? • Dollar markup divided by the price.(P-V)/P = markup ratio

  4. A boy buys an apple for $6 and sells it for $10. • What is his markup on price? • A) 40% • B) 66.67%

  5. Market Share is a word that gets in the way!

  6. Two Popular Approaches • Market Share as My Share of the Total Market’s Sales Volume • Relative Market Share as My Share as a Percentage of Average Share of the Sales Volume

  7. Share of Total Market • The Industry sells 500,000 shoes in the Home Market (M = 500,000). • My firm sells 60,000 shoes in the Home Market (Q= 60,000). • What is my Market Share ( S)? • S = Q/M • S = 60,000 / 500,000 = 12%

  8. As a worker you calculate market share! • S = Q/M • As a Boss you use market share for forecasting and planning! • Next period You expect the market to be 600,000 shoes. If your people keep your market share at 12%, How many shoes will your team sell? • Q = S x M • Q = Q/M x M • Q = 12% x 600,000 = 72,000 shoes

  9. Relative Market Share

  10. Relative Share • Relative (to Average) Share • You have a market share of S = 10% and the average market share is Sa = 12%. • What is your relative (to average) market share (Sr)? • Sr = S/Sa • Sr = 10%/12% = 0.8333 = 83.33%

  11. Average Share • There are 5 firms in the industry, N=5. Two have above average sales and three have below average sales. What is the average percentage market share? • Average Share = 1/N = 1/5 = 20% • Average Share = 1/(Number of firms in the industry) = 1/N

  12. Relative (to Average) Share • There are 5 firms in the industry (N=5). You have a 12% market share (S = 12%). • What is your relative (to average) share, Sr? • Share = Q/M = 12% • Relative Share = Sr = N(Q/M) • Sr = N(Q/M) = 5(12%) = 60%

  13. Average Sales Volume • There are N= 5 firms in the industry. The industry sells M = 600,000 shoes. • What is the average volume of shoes sold by each firm, Qa? • Qa = M/N • M/N = 600,000/5 = 120,000 shoes

  14. Relationship Between Market Share, S, and Relative Market Share, Sr • Volume = Market Share x Market Size • Q = S x M • Q = Q/M x M • Q = Q/M x 1 x M • Q = Q/M x N/N x M • Q =(Q/M)N x 1/N x M • Q = Sr x Sa x M • Volume = Relative Market Share x Average Market Share x Market Size

  15. As the Boss you use both market share and relative market share to forecast and make marketing plans.

  16. You anticipate the total industry sales will be M = 500,000 shoes next period. The average market share is Sa = 20% and you hope your relative marketing efforts will maintain a relative (to average) market share of Sr = 90%. How many shoes, Q, should your anticipate selling? • Q = Sr x Sa x M • Q = (Q/M)N x 1/N x M • Q = 90% x 20% x 500,000 • Q = 0.9 x 0.2 x 500,000 = 90,000 shoes

  17. If you feel you have to memorize the formulae we have just used, then you going to be working very very hard!! • Don’t let the words get in the way.

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