It’s imperative that folks understand that one of the most critical parts of the online marketing process other than planning and resource allocation is ‘Execution’.

Hopefully, we’ll all learn this in time…

It’s imperative that marketers help build the online marketing function as a capability that can aid them effectively over the long term. to do this, they must first allow the capability to develop on its own with strong guidance at first, but slowly allow it to blossom.

Estelle Metayer is one of these people. Her insights and advanced thinking into marketing and competitor intelligence are very potent. But, her ability to translate these concepts into day-to-day actionable changes is what makes her such a powerful communicator. Gosh, maybe I’m in love!

In any case, here’s a two part adaptation of her article on how to calculate market share. To say that, this helped me immensely is an understatement.

Have you ever been in a situation where your competitor claimed a market share that was not even close to the calculations you gave to your senior management? Or where different people in the organization were using different numbers? Where annual reports claimed market shares you could not retrace in your calculations? Understanding how you can calculate – and use – market shares can be extremely useful.

This article will discuss some of the techniques you could apply when dealing with market share calculations:

• Why is an appropriate calculation of market share so important?
• Defining your market share according to your objectives;
• Market share calculations and pitfalls to avoid;
• How to calculate a market share when there is no data available.

Why is an appropriate calculation of market share so important?

As a marketing manager at Starbucks described in an excellent article about market share in the retail world, the underlying themes typically include any, or all, of the following:

Market potential – “How many dollars are there in this market for my concept?”

Market share – “How much of the potential in the market do I capture?”

Market opportunity – “Which markets offer the greatest opportunity for growth?” But market-share calculations can also serve other purposes. They can be used to:

Challenge common wisdom : One of my clients at an electronic firm consistently claimed his company owned 80% of the world market in its segment. However, we soon noticed that the accounting team, which was responsible for maintaining the market share calculations up to date, used the following method to arrive at their calculations:

Number of contracts won / number of contracts pursued

Because the company was only pursuing half of the total contracts available, this measure did not portray an appropriate picture of reality – which was that the company really owned less than 50% of the total market.

Avoid blind spots and avoid overlooking substitutes: Imagine yourself as the marketing manager for Coca-Cola. What is your market share? Roughly 60% of the world market versus Pepsi? Not really. Management at Coca-Cola does not only include the direct competitors into their market share (Pepsi), they can also include soft drinks (Sprite, fruit juices, etc.) or even any Food & Beverage product destined to cool down a dry throat. For example, they can include ice cream. This method allows a company to include alternative products/lifestyles to avoid a blind spot – a new trend or product arriving in the market, such as the increase of consumption of smoothies, that would not be tracked otherwise.

Similarly, do manufacturers of corn flakes compete only against one another? Or do they also compete against makers of other ready-to-eat cereal? What about hot cereal? What about bacon and eggs?

To present a common sheet to work from: In many companies, there are a variety of market-share calculations. Accounting calculates the market share based on revenues; the marketing department uses the number of products sold; the strategic-planning department looks at the broad picture, etc. As you can easily imagine, working from the same set of numbers is useful. It will also avoid confusion and contradictory messages (annual reports, discussions with journalists, etc.)

Defining your market share according to your objectives
In fact, market-share calculations are often “twisted” to serve political or public relations purposes. Here are some examples:

Market-share calculations and pitfalls to avoid

The calculation seems easy:
Products or services sold (A) / Market size (B)
However, here are some of the questions you can ask yourself:

A: Products and services sold

• Do I calculate in dollars or units?
• Do you take into account booked orders or delivered orders?
• If I calculate in dollars (or any other currency – pardon my Canadian biases), do I compare real dollars year to year or do I adjust with inflation?
• How do I incorporate sales from subsidiaries?

B: Market size

• How do I define my market? As Ben Bidwell, who headed marketing at Ford Motor Co., once said, “Define your market, don’t let it define you.”
• Do I include all countries, or only the ones where I am active?
• Do I include taxes?
• Do I include the service component?

How to obtain market share when there is no data available Bottom-up:

• Track the number of units sold and the number of contracts awarded through press releases and articles;
• Create a database (Excel works well usually) to add them up;
• Assuming that one is never able to track all contracts awarded, extrapolate using what you know of the total market size

When does it work best? When your company is active in a market where large contracts are awarded (defense, energy systems, transportation projects, etc.)

Players revenues:

• Gather information from annual reports and company information about the total revenue in a particular market;
• Add revenues from main players;
• Extrapolate for smaller players based on number of employees, or estimate of revenues

When does it work best? When there are few players: the aerospace industry, for example (the size of the aircraft market can easily be obtained by looking at Boeing and Airbus and a handful of other companies).

Demographics
If your product is a consumer good:

• Go back to statistics and demographics;
• Assume a penetration percentage;
• Calculate volume in units;
• Apply price/cost per unit.

One can turn to readily available geo-demographic data from vendors like Claritas, CACI, and Applied Geographic Solutions. For a few industries, the questions are answered through systematically obtained consumer data. IRI, ACNielsen, and others provide scanner-based purchase data. Companies like NPD and MRI provide consumer survey data. Other companies, such as IXI, provide market share and account data for specific industries (in IXI’s case, the financial services industry). With few exceptions, however, the data are not generally available at low levels of geography.

When does it work best? For consumer products.

Similar market

• Select a similar market to yours (in size or in behavior);
• Extrapolate from a market you know well, or where more information is available;
• Adapt the number obtained for particularities of the market;
• Use as an estimate of market size, and not a precise number.

When does it work best? When the market is comparable. For example, to understand the size of a Canadian market, use US market and divide by 10 to get a “back-of-the-envelop” average.

Linked to another market
Use the numbers from the larger market to derive size of the current one. The market you pick will have to be directly proportional to the one you are analyzing.

When does it work best? When both markets are directly proportional to each other: for example, the size of the car seat market is closely linked to the size of the car market.

Conclusion
By now, you have understood how misleading a market-share calculation can be, and how companies can easily manipulate them. In order for you to use them effectively, you should also write down your assumptions and make sure you compare “apples with apples.” As a result, always beware of market-research reports which often lack explanations of how the market calculation was done. In fact, you should almost always pick up the phone and talk to the person who originated the calculation, to check his/her assumptions.

About the Author
Estelle Métayer is president of Competia. Competia is North America ‘s leading consultancy and training organization for senior executives and analysts in Strategic Planning and Competitive Intelligence. A former consultant at the international strategic consulting firm McKinsey & Company, Estelle has written and lectured widely on the process involved in turning the intelligence gained into actions.

Then, the CEO asks you. “How are you going to implement this?” Either you have a series of next-level tactics on hand or you fumble about how different members of your team will keep working hard to make this happen.

The meeting ends with no financing approved. What went wrong?

Here’s what happened : You did not have a series of tactics thought out on how you would implement your strategy. Even worse, you did not have an operational plan for execution. Let’s understand how tactics fit into the work-flow.

Tactics sit somewhere between strategy and day-to-day operations. You break down your overall strategy into digestible executable pieces – those are tactics. Next, you break down those tactics into operational goals to be achieved in a certain amount of time. After that, you have your day-to-day operational activities.

The steps are simple. Once again :

Strategy- > Tactics -> Operational goals -> Day-to-day steps to execute to achieve goals.

Let’s take an example. Suppose your business strategy requires that you launch 2 new products every year to increase penetration.

Tactical Question : What is the optimal mode or route to launch this?

- Do you wait for a competitor to work out a concept, go through the initial pain and leap-frog them? In this case, you would lose your first mover advantage.
- Or, you try testing 100 new ideas hoping one would work? This means that you have to innovate and test new products.
- Or, do you make small, minor improvements in an existing product and launch a variant ?
- Or, do you come out with something totally new?

What next? You’ll have to set tactical goals in place to leverage each function that will contribute to the success of any of the courses of action above.

Next, the operational part. Resource allocations will need to be done, you’ll have to create and maintain a process for the next several quarters (and tactically implementing them one by one). Your sales force will need to use messaging to keep your customers engaged and informed about what you’re planning to deliver to the market in terms of a new product or offering.

Then, finally the execution plan which has time-lines right to the last detail. If you plan to go to market in six months, transition to actual production, before that part testing the prototype, before that the prototype needs to be ready, before that the idea has to be translated into a physical design and so on. This breakdown of tactics into operational goals and a time-line will tell you if the business idea is practical or a waste of time.

Finally, the numbers. How does the revenue model work? Is the revenue model based on some assumption of “we’ll go after ABC market segments and assume that this many people will buy the product”? And, if that is all you have, you might as well hang up your boots. Optimism is a good thing, but in the end it does not pay the bills of a business or contribute to cash flow.

Do your analysis. Have the segments clearly mapped out and understood. If you don’t have this part, the tactics cannot be worked out. Have you done any test marketing? A specific example would be launching a software product aimed at an online retailer. If that category of retailers is a commoditized or generic part of the Internet, how will you acheive penetration? Will you offer a full-fledged service or will just sell the product for in-house use? How will the product be marketed? Will you do it on your own or co-market with another software provider? How will you target the specific segments of large/medium/small customers? For small buyers, how will you price the product? If it is expensive, will you just let them have the product and charge a monthly fee for using it or want a one time, large fee? For large buyers, how would you enter and target the final decision maker for making a purchase? And finally, have any of these been tested in a limited setting or are riding only on assumptions?

Work out these aspects before approaching anyone for funding. Period.

Some key elements to test :

- Revenue model
- Cash flow (will they survive till things take off)
- Profitability (what are the key determinants/assumptions and associated risks and “plan B”)
- Execution time-lines
If you have the above, things will go much better than expected. The executive team or a Vc will be impressed by the level of preparation and your project will be greenlit.

According to the IAB, the US advertising spend was $300 billion in 2008 with 25% of that expenditure going into direct mail. Let me try to figure out Google’s spend:

Breakdown for costs of a single mailing (Note that these are approximate figures) :
$ 0.30 in postage
$ 0.10 in printing and paper (Assuming a monthly mailing average of 20000 pieces per month)
$ 0.05 for direct mail sorting, address verification services, staff time
$ 0.05 for additional expenses

Total cost of a single glossy postcard mailer = $0.50 (I did get a recommendation that $0.40 was par for the course as a baseline, but I’m still going to plug in a slightly higher estimate).

Now, according to the US Small Business Administration, In 2004, there were an estimated 23,974,500 businesses in the U.S. Of the 5,683,700 firms with employees, 5,666,600 were small firms.

Assuming that Google wants to focus on businesses with 5-9, 10-19 and 20-99 employees, then they would send mailer to 2.2 million businesses. If they just want to focus on the firms that employ 100-499 employees than, they be sending mailers to 90000 firms. Assuming Google will employ an 80-20 rule and market to 20% of the small business segment that will avail of Google’s services and give them 80% of the revenue from that segment, then they’d probably mail to firms employing 20-99 folks (525,000 firms) and those employing 100-499 folks (90000 firms). That would be a total of 615,000 firms.

With the above cost breakdown, we could guesstimate that Google spends about $308K approximately.

If they decide to go for something more snazzy and send in a full-fledged mailer (envelope, inserts, magnet etc), assume a cost of $2 per mailer, we’re looking at $1.2 million direct mail spend by Google on small businesses.

I bet very few folks actually know that Google does direct mail since the assumption is that they would just leverage their reach online. Hope the above helped…

The premise of this article was based on the fact that marketing folks always keep telling us to mollycoddle our customers and do things like customer care, customer delight, customer is king etc. etc. I agree with Mr. Brown to an extent; Some customers are uninformed and only focus on one attribute on a product, which is mostly price.

Sometimes, they may not really know what they want.

It is true. Marketers have been doing so many brand extensions, line extensions, brand revamps, over-segmentation for so many years that we as customers have been reduced to new depths of indecisiveness. Plus, we’re in a culture that give credence to opinions so we’re an opinionated race, we love to talk about something that we know absolutely nothing about and even worse, we want to be recognized for spouting such drivel.

In any case, I digress, Mr. Brown, in his article, demands that we get back to the age of retromarketing.

So, what is it? Well. Retromarketing shuns all modern marketing principles to the point that it stands everything contrary to today’s marketing philosophies. Why do people still go to used car lots and buy lemons from snake-oil salesmen? Why do we still allow ourselves to be enamored by a good sales pitch? Let’s try to understand this by understanding retroactive marketing more thoroughly.

Exclusivity:

Customers love this. It gives them the sense that they’re fortunate and lucky to be the select few to get a ‘special ” product. Harley Davidson does this, Mazda does it with its Miatas, Nintendo did it with their Wiis, Ty Inc. did it with Beanie Babies and Webkinz did it with their ridiculous stuffed animals where they enticed kids with the promise of entering an exclusive club online by using the access code printed on the labels

Secrecy:

A great example of this is Scholastic’s campaigns with Harry Potter. When ‘goblet of fire’ was ready to be released, Scholastic made sure that they held back information about every aspect of the book – there some some deliberate pieces fed to the slobbering press coupled with hints that there weren’t enough copies of the book to go around further increasing demand. Of course by the time the book was released and every Tom, Dick and lemonade stand had it, nobody complained since they had all read the book and had forgotten the mysterious marketing campaign. That being said, we are a race that moves on.

Additionally, we get the secrecy aspect of marketing daily from KFC with the Colonel’s secret recipe, from Coca Cola about their secret formula and Mrs. Fields Cookies about their arcane recipes.

Amplification:

This is the viral part of retromarketing. Use as many inexpensive means as possible to get the message across that the product or experience is something that one has to know about. ‘Snakes on a plane’ is a terrible movie but the buzz that preceded its release led to moviegoers flocking the theartres during its first week. Ditto with ‘The Blair Witch project’ which after weeks of speculation led to it being a blockbuster when it was finally released.

Entertainment:

This is principle number four of retromarketing. Engage, amuse and entertain your customer in the best possible way. I love the Verizon FIOS ads on TV where the Comcast guy is simply hilarious. With this ad, Verizon has reduced Comcast to a caricature of a installation guy who cant be taken seriously. And oh! while people laugh at the ads, they’ll pick up the phone to get FIOS installed. In comparison, Comcast’s rejoinder ‘Don’t buy FIOS’ ads are weak.

Hollywood has learned this part very well when they promote movies online. Right from creating micro sites that promote their movies, to partnering with like-minded partners to promote the movie (if it’s a kids movie, they partner with fast-food chains, entertainment chains etc).

Tricksterism:

I love how Mr. Brown writes about how marketing must deal in tricksterism using tactics like Loki (the Norse God) and Wily Coyote used. The Blair Witch project is another example of tricksterism. Mr. Brown clearly states that he does not advocate that marketers cheat theirs customers by way of this principle, but by using an extra helping of panache and exaggeration to promote something.

The article is quite a read. He also advocates that Marketing is all about fun. It should be fun. Customers know that a car is a mode of transportation, but marketers with promoting a brand engage them in a cycle of seduction and excitement where they make a car to be much more that what it is with claims of mileage, reliability, 0% APR, features, add-ons etc.

He does offer a final caveat. Retromarketing is not for everyone or every product, service or market segment. I personally feel that people do like to be teased and by instinct we tend to crave what is harder to obtain than what is easily available. We still like our macho heroes even though the culture says that today’s man needs to be more in touch with his inner feelings.

Life can be boring sometimes. It’s up to marketers to be entertainers and customers love that (why do you think folks watch the WWE or reality shows even though they’re the lowest form of entertainment?) I’d say that a balance is required from marketing folks: Don’t oversell. People are smarter than we think. Respect that and market your product sensibly. Rewards will follow through.

Situation : You’re a runner-up firm in a certain industry and you want to enter/ expand. Start with the basics. Ask yourself what you would like to accomplish here.

The images below have the market share break-up of search engines as well as Internet browsers for reference. IE was perceived to have an impregnable position until Firefox came along – a lesson to remember.

Solutions :

Step 1:

Define your strategic objectives (e.g. To increase market share in XYZ market by X% in Y months.) It pays to be objectively sensible. If you’re going head-to-head with the market leader, the aim should be to increase market share not take over #1 because there are many reasons why the market leader is in first place. If you think to0 big, you’ll think (and outspend) yourself out of business.

For e.g. Bic understands well that Gillette is the undisputed leader in the razor market so all it want to do is increase market share.

Step 2:

Understand the market leader well. Conduct a SWOT analysis, product positioning maps, brand loyalty matrices, a BCG matrix – I guess I’m saying, do your analysis!

Step 3:

Choose a plan of attack. Here comes the fun part :

1.  Frontal attack : All bets are off with this one. You clearly indicate that you’re taking the leader head-on in a high-risk but potentially high-payoff strategy. Here’s you match your opponent in all respects : product, advertising (spend & reach), pricing and distribution.

• Success factors : Basic warfare 101 says that the side with the greater resources will win. For a frontal attack to succeed against a well-entrenched opponent or someone controlling a high ground, the attacker must have a 3-to-1 advantage in firepower. Example : A local cola brand in India “Thums Up” took on Coke and Pepsi head on when they first entered India. But, it lacked the resources and marketing acumen to carry on the fight and was bought out by Coke in the 90s.

How to succeed : Modify your frontal attack. fight on one or two fronts at the most pecking away at your opponent. If he retaliates, be prepared for an all out response.

2. Flank Attack:

Here you concentrate your strengths against the weak spots of your opponent. You can do this either geographically or by segmentation.

• Success Factors: Identify a shift in market segments that cause gaps to form, act swiftly to fill those gaps and develop them into strong segments that are loyal to you. This is basic marketing : Identify needs and satisfy them. Period. Note that this form of attack makes sense if you don’t have as many resources as the leader and has a higher probability of success. Example : Japanese car firms back in the 80s when they introduced fuel-efficient cars or Honeywell when it competed with IBM in the mainframe market, set up strong sales infrastructure in medium and smaller-sized markets that were neglected by IBM.

3. Encirclement attack:

This is simple. If you’re a big firm with lots of resources, you attack the leader on multiple fronts.

• Success factors: The objective is clear. Grab as much share as possible through a simultaneous attack on a couple of fronts. Add more value to your product, advertise on strategic fronts, partner with like-minded products. Example : Facebook opened up its API to developers at a time when a move like this was considered a no-no. This resulted in the creation of Apps which at the time were intriguing to users.  It also rolled-out multiple features and new add-one consistently to the point that mySpace was left to watch helplessly while it struggled to catch on.

4. Bypass Attack:

Here marketing takes some Machiavellian turns where you pretend to neglect the direct competitor and instead work on expanding your resource base. There are three ways to do this : Diversify into unrelated products, diversify into new markets geographically or supplant existing products with new technologies.

• Success factors: Here you’re consolidating your base and building up to a frontal or flank attack. Patience is key. An indirect strategy like this will leave your opponents guessing and snickering but, if executed well with a clear vision of what is to be accomplished at the end, it possible to win.

Example 1 : Summer of 98′ – Pepsi buys Tropicana for $3.3billion. buying the market leader in the OJ space helps it compete directly against Coke’s Minute Maid.

2000 – Pepsi buys Quaker Oats, the owner of Gatorade another dominant player in the sports drink market (80% market share as opposed to Coke’s Powerade) for $14 billion.

Earlier in the program, Pepsi develops its bottled water brand Aquafina which now commands a 14% market share as opposed to Coke at 11% and Poland springs at 10%.

Moral of this story : You may lose the brand war with your flagship product but could win the overall EBIT war with your family of brands.

Example 2 : Nintendo bides its time patiently in the video game console wars to a point where it’s perceived as insignificant with GameCube being a distant third. Microsoft and Sony battle it out with Sony claiming the dominant position. Behind the scenes, Nintendo invests heavily into R&D and then releases its Wii console in ’06 with new technological characteristics and an entirely new style of playing games and with expanded appeal to a broader audience. It employs a retroactive hold-back strategy where limited amounts  of Wiis are available for purchase and keeps building anticipation years after it is launched. In Jan ’09, 2.1 million units of Wii are sold in the US market. X-box sales – 1.4 million units. PS3 – 726,000 units.

In conclusion, being the #2 or  lower in a market is not necessarily a bad situation for you as it’s quite possible to seize a portion of market share from leader and increase your share over a period of time using some of the tactics above or innovating with new products and technologies.

If you’re No. 2 in a market, you could spend tons of time reinventing the wheel and trying to ‘discover’ something new or…

You could wait till No.1  aka the market leader has borne the costs of having a product development process, developing a new product or variation, educating the market about it, setting it into distribution and promoting it. So, No.1 is the market leader for now. Big deal! Assuming that the product is easy to replicate, you were just able to outsource the R&D for the newest addition to your product line for free. Now, unless you come up with an outstanding USP (Unique Selling Proposition), there a slim chance that you’ll overtake the market leader, but you’ll definitely get strong profits as you wont have the upfront costs of R&D and product awareness/advertising.

According to Philip Kotler, it quite common to find this kind of ‘conscious parallelism’ in capital-intensive, homogeneous industries like steel, fertilizers and chemicals. I’d add any other kind of generic products to that mix like electronics – tv, stereo systems, dvd players, computers, plastics and things of utility. It is quite sad – we’re moving from an age of innovation and creativity to an age of generic consumer misery. In any case, in industries like this the opportunities for product differentiation are low, service levels are usually the same (oh hey, would you like your steel gift wrapped? ) and the products are very price sensitive.  Typically, in such industries a short-run grab for market share is a no-no since that will only result in retaliation.

So, everyone co-exists peacefully for most of the time until one of the following strategies are implemented effectively…

1. The Counterfeiter : The most disreputable of all followers. This guy duplicates every aspect of the market leader’s product and packaging and sells the fakes on the black or open market. A good example is the counterfeiting that takes place in India, China or the Far East and those products land on the streets of New York where folks readily buy a Prada duplicate. Naturally, this kind of follower also has excellent reverse-engineering skills to take apart an intricate product.

2. The Cloner : This type of follower uses the leader’s products, brands and packaging with variations. The computer industry is plagued with tons of cloners worldwide. In developing markets, cloners attempt to build their own brands by using the leader’s product attributes, brand colors, similar messaging and of course, packaging.

3. The Imitator : The imitator may copy some basic features and functionality of the leader’s product but differentiates their products in terms of packaging, advertising and pricing. Market leaders don’t mind imitators as long as they don’t attack them aggressively.

4. The Adapter : The adapter adapts some of the features of the market leader’s products and improves them. Usually, the adapter plays in different markets but can morph into a future competitor in the market leader’s home market. A good example of this is the Japanese auto industry which currently rules the roost in the North American market.

It’s imporant to realize your limitations if you’re a follower. If you cant get to No.2 or at the most No. 3, then it’s better to exit the business (ex-GE Jack Welch style) and focus on your core competencies rather than play a losing game. It’s key to note that a No. 2 firm typically make a 6% ROI. No.3 operates  at a loss so if you’re at the No.3 position either you have a high-priced niche productwhich keeps you in the black or you have a vast portfolio of products that helpd you subsidize your loss-making No.3 market-share product. Either way, let common-sense and net profits lead your decision-mkaing rather than a sentimental reason to keep running a loss-making product.