Market Share
What is Market Share?
Market share is the portion of a market controlled by a particular company or product.* It is calculated by dividing the company's total sales or revenue by the industry’s total sales or revenue over a specific period of time. Sometimes, market share is calculated by dividing the total number of products or services sold (total units) instead of sales or revenue. Market share is typically presented in percentages.
A formula to calculate market share based on sales:
Market Share = (Company’s Sales/Total Market Sales ) × 100
Consider the example of the fictitious software development company CodeStreamABC. They specialize in a management tool for small to medium-sized businesses in North America. The industry is competitive, with several players offering similar products. Last year, the total revenue from all companies selling similar software was $500 million. CodeStreamABC reported sales of $50 million. This means that last year, CodeStreamABC held a market share of 10% in this market. This information helps CodeStream understand its competitive position within the industry.
*Oxford Language Dictionary
Pursuing Market Share
Unrealized Value, also referred to as a satisfaction gap in Evidence-Based Management terms, is the difference between a person’s current experience or level of satisfaction, and their desired experience or level of satisfaction. Customers with similar desired outcomes can be grouped and considered together for planning and analysis purposes.
Unrealized Value considers the potential gains and opportunities that a product or business has not yet captured but could achieve through strategic changes or innovations. Market share and Unrealized Value are connected concepts within business strategy and product management contexts. Understanding this relationship helps Product Owners and stakeholders identify growth opportunities and areas for improvements and enhancements.
Based on CodeStreamABC example above, the company holds a modest market share (10%) in a highly competitive industry and would like to increase their portion of the market. To do this, they identified two approaches they could take. Since their product was already competitively priced in the market, they could either further lower the price of their product and provide more economic (affordable) versions of it. Alternatively, they could identify the satisfaction gaps of their current and potential customers, to see if there might be different features for their current product or additional separate offerings that would help the customers perform their jobs better and for CodeStreamABC to differentiate themselves. This would allow them to increase their pricing. Both options are valid to pursue potential market share. (It is important to note that companies should continuously re-evaluate the satisfaction gaps that might exist for customers to see if there are opportunities worth pursuing.)
By closely monitoring customer feedback and market trends, and continuously iterating on their product, companies aim to meet the increasing demand for desirable solutions to capture this potential market share.
Why is Market Share Important for Scrum Teams to Understand?
Market share is valuable information for Scrum Team members to understand, especially Product Owners. It provides insights into their product’s position in the market and helps guide strategic product management decisions.
In addition to giving insight into Unrealized Value, market share analysis helps a team understand how well their product meets market needs at a certain moment. This type of analysis involves examining why customers choose one product over another. Furthermore, when Scrum Teams understand the market position of their product, it helps them anticipate and manage risk. For instance, declining market share could be an early warning of increased competitive pressure or customer dissatisfaction.
Market share trends can reveal underlying market dynamics such as customer preferences, emerging technologies or shifts in customer behavior. Based on this information, a Product Owner should adapt their product strategy, goals and Product Backlog accordingly.
Conclusion
Understanding current and potential market share is more than just “knowing the numbers.” It also requires interpreting what those numbers signify in terms of your business strategy, product strategy, product development and customer satisfaction. This knowledge enables Scrum Teams to make better-informed decisions that drive their product forward in a competitive landscape.
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