Market Share Variance
Market share variance is a measure of the change in a company’s market share over a specified period. It provides an understanding of how a company’s position in the market is evolving and helps evaluate the effectiveness of its business strategies in comparison to its competitors.
The market share variance can be calculated as:
Market Share Variance = (Current Period Market Share – Previous Period Market Share)
For instance, if a company’s market share was 30% last year and increased to 33% this year, the market share variance would be +3% (33% – 30%).
A positive market share variance indicates that the company has gained market share, which could be a sign of successful marketing strategies, competitive pricing, product innovation, or overall industry growth where the company is growing faster than its competitors.
A negative market share variance, on the other hand, suggests the company has lost market share, potentially due to increased competition, customer dissatisfaction, higher prices relative to competitors, or other issues.
It’s crucial for companies to understand the reasons behind changes in market share and to adjust their strategies accordingly. However, chasing market share at the expense of profitability can lead to problems, so companies also need to consider other factors such as profit margins and return on investment when making strategic decisions.
Example of Market Share Variance
Let’s consider an example from the electronics industry.
In 2022, let’s say that GadgetCo, a smartphone manufacturer, had a market share of 20% in the global smartphone market. By the end of 2023, their market share had increased to 23%.
The market share variance for GadgetCo from 2022 to 2023 would be:
Market Share Variance = Current Year Market Share – Previous Year Market Share
Market Share Variance = 23% – 20% = +3%
In this case, GadgetCo’s positive market share variance indicates that it has gained market share over this period. This could be due to several reasons such as the success of a new product launch, an effective marketing campaign, or difficulties faced by its competitors.
However, to get a complete picture of the company’s performance, GadgetCo should also consider other metrics such as profit margins, customer satisfaction, and brand reputation. It’s also important to understand the reasons behind the increase in market share and whether it’s sustainable in the long term.