(2.7) Myth 7: Interpreting Market Intelligence insights is easy

No, it is not. And much has to do with the level of granularity we discussed in previous point. To illustrate this, let us take one conviction that I personally heard brilliant decision takers express over and over again:

“If my market is growing with x%, and we keep the same market share, our turnover will grow with x% as well”

Do you agree? It sounds logical, right? Nevertheless, in virtually every case this conviction is nothing less than untrue. I can even predict that in most cases you will find yourself losing market share overall, even if you gain market share in each segment you serve !

How can this be?

Well, fact is: just as long as you are serving different market segments with different products or services, these markets are likely to behave differently from each other, and your resulting overall turnover evolution will certainly behave differently from the overall market you operate in. Additionally, if your market share is less than 50% in the biggest markets or the markets with the highest growth, your overall market share is likely to decline over time.

Let us look at an example to illustrate this fact. Let’s say your company has a portfolio of 5 products (the same would apply for services or market segments, geography, or a combination of any of those). For the sake of simplification, let us assume you only serve one market segment with these products, in one single geography. The table here under shows the addressable market size for each product, for calendar year CY00 and CY01, as well as the market growth, the revenue of each product and the resulting market share:

In this example, we have a high market share in the biggest but stagnant market, and a low market share in the small but growing markets. Our overall addressable market grows with 20% year-on-year, and our initial overall market share is 52%.

Let us now look at what happens with our turnover in CY01 in two scenarios: if we keep the same market share in each market (scenario 1), and if we gain market share by 2% in each market (scenario 2):

What do we see? Even if our addressable market is growing with 20%, our turnover will only grow with 9% -even if we keep the same market share in each product-, resulting in a decline of 4% in market share. And what if we gain 2% market share in each product? Our turnover would grow by 14%, still resulting in a market share decline of 2%.

This example is extremely simplified, of course, but the fact remains that you will always lose market share on your overall addressable market if you have a lower than 50% market share in the areas with the highest growth.

And in a way this is a good sign ! It does mean that you are present in markets that have growth potential for your business, either by a strategy of taking market (share), or by organic growth. However, to stop the overall market share bleeding, you should aim at a market share of above 50% in these markets.

To get back to your seventh myth: no, the interpretation of market insights is not always that simple, even if you have reached a sufficient level of granularity. All too often simple conclusions are drawn over market data, while they just require some further manipulation in order to draw the right conclusion from them, like we just did with our market share scenarios.