Keeping Score: Financial Analysis and

Performance Metrics
Understanding Market Share

What is Market Share?

Most simply, market share is the proportion of total market sales attributed to a single
company or product. It is the total sales of a single company’s product divided by the
total sales of the same product for all firms in that market. A single firm’s market share
is expressed as a percent of this later total. For example, if the total sales for all craft
beers in the Dallas-Ft. Worth market area were $10,000,000 in 2014 and the total sales
for a single brewer (say, Revolver) were $500,000, then Revolver’s market share in
2014 was $500,000/$10,000,000 = .05, or 5%.

There are a number of ways to view market share. The view just discussed is the
simplest way to look at market share and is termed absolute market share in which a
single Firm’s sales are compared to the absolute sales of the industry as a
whole. Absolute market share can be computed in two ways: 1) based on unit
sales, unit market share; and 2) based on revenue, revenue market share:

By contrast, marketing managers also are interest in measuring their relative market
shares compared to specific competitors, usually the largest competitor in the relevant
market. Relative market share is the Firm’s sales expressed as a ratio with the sales of
these competitors:

Since the ratios in the above formulas are multiplied by 100, the result expresses
market share in percent form and should have the percent symbol appended to the
result e.g.; 50.15%. Keep in mind that market share often is expressed in decimal
form. For example, 50.15% would be .5015 when expressed in decimal form. In this
case the resulting computation should not be accompanied by the percent
symbol. When working the problems for this exercise, pay close attention to how your
answers are to be formatted. In general, the exercises ask you to express your results in decimal form
rather than percent form.

For example, above we noted that Revolver’s sales for 2014 were $500,000 and it
commanded 5% of the total craft beer market in the DFW market area. Assume that
Revolver has three other primary competitors in this market area: Rahr and Sons, Deep
Elum Brewing Company, and Petticola’s Brewing Company. Assume the market shares
held by these three brewers are 10%, 7%, and 6.5%, respectively. Revolver’s relative
market shares compared to these three brewers are:
 Against Rahr and Sons:

Against Deep Elum:

Against Petticola:

Using Market Share Information

Market share is among the most commonly used and informative performance metrics
available to managers because it helps Firms gauge or bench mark their performance
relative to competitors. Armed with a knowledge of the Firm’s market share and the
shares of its competitors, managers can develop strategies to growth revenue.

In many industries, Firms with larger market shares (market leaders) tend to be more
profitable, have lower unit costs, possess higher cash reserves, and have better cash
flows. Such Firms also tend to have higher levels of brand awareness. Firms with
significantly smaller relative market shares are at a competitive disadvantage with little
hope for obtaining sustained growth opportunities.

By contrast, if an industry is predominantly comprised of smaller players with roughly

similar relative market shares, market share battles are more likely to be successful and
individual Firm’s may make significant market share gains at the expense of
others. The extent to which market share battles will ensue depends to a large extent
on that stage of the product life cycle in which Firms are competing. Industries in late
introductory and growth stages of their lifecycles are more likely to enjoy increasing
revenue streams associated with increases in primary demand.[1] The overall market
is growing because more and more customers are attracted to the product.
For example, the craft beer industry is in the growth stage of its product life cycle and is
enjoying tremendous growth in primary demand. Craft beer sales have grown from 4.9
million barrels in 2010 to 10.6 million in 2014. During the same time period, the number
of brewers has grown from 1,625 to over 3,000. This 18%+ annual growth rate means
that individual brewers can add revenue without necessarily increasing their market
shares. By contrast, if primary demand was stagnant; i.e. the overall demand for craft
beer was not growing, increases in revenue for individual brewers would likely have to
come from sales poached from immediate competitors. A much more difficult
proposition!

Now It’s Your Turn. Show Us What You’ve Learned.

Shannon’s Brewery is a newly opened micro-brewery of craft beers located about a mile
from Samantha Springs in Keller, Texas. According to Shannon Carter, (owner, founder,
and brew master) Samantha Springs “is an exceptional water source.” “It’s surrounded by a
very unique rock formation that has very, very hard compressed rocks that have been hollowed out
with this very fine sand. The water travels for miles, and the end product is this filtered
water that is just phenomenal.”
 Shannon Carter crafts what the brew master calls “wholesome beers” made with the
highest quality, non-GMO grains and malts available and brewed using techniques
garnered from his Irish heritage. Shannon’s mission statement closely reflects this
philosophy. According to Shannon Carter:

“Our award-winning beer is brewed with the best stuff on earth:

pure spring water, whole grain, whole flower hops and a whole lotta
love! For us, “brewed with the best stuff on earth,” is much more
than a saying…it’s a guiding principle. Paramount to this
commitment is our multi-step fire-brewed process.”[2]
What makes Shannon’s beer great?[3]
 Pure Samantha Springs Water — We start the brewing process with pure Samantha Springs water —
straight from the spring, through our filtering system, right into our brewing tanks — no chlorine, fluoride or
any other treatments…just pure spring water.
 Fire Brewed Process — Our beer is brewed using an old-world fire-brewed process handed down by the
founder’s great grandfather. This process enables us to precisely control enzyme activity, produce superior
malty flavors and delicately caramelize our sugars — creating truly wonderful and unique beers.
 All-Natural & Wholesome Ingredients — We use pure spring water, quality malted barley and whole
flower hops in all of our brews. This provides our beer a complexity, flavor profile and aroma that is
wholesome, natural and truly enjoyable.
 Patience — Great beer takes time — it requires patience in brewing, fermenting and especially aging. Our
beers are allowed to age properly, ensuring a wholesome and great tasting beer.

Table 1 summarizes the sales in gallons of beer and dollars for Shannon’s major
competitors in the DFW area. Also contained in the exhibit are estimates of total beer
sales for 2014 in the counties comprising Shannon’s relevant market area. These
counties include Dallas, Denton, Tarrant, Collin, Wise, and Cook.

Table 1. Sales Data for Five Craft Beer Brewers in the DFW Area.
Total 6-County
Sales Revolver Rahr & Son's Deep Elum Petticola
Sales
Barrels Sold 7,779 38,894 4,862 4,278 194,472
Gallons Sold 241,145 1,205,726 150,716 132,630 6,028,632
Oz Sold 30,866,596 154,332,979 19,291,622 16,976,628 186,887,592
12 Oz. Cans 2,572,216 12,861,082 1,607,635 1,414,719 15,573,966
6-Packs 428,703 2,143,514 267,939 235,786 2,595,661

Price to Retailer
6-Pack $ 3.50 $3.55 $3.52 $3.48 $3.51
Case $84.00 $85.20 $84.48 $83.52 $84.30

Revenue $1,500,460 $7,609,473 $943,146 $820,537 $9,117,259

[1] Primary demand is the demand for the product category as a whole. Selective demand is demand for
individual brands within the product category.
[2] Taken directly from Shannon Brewery web site: http://shannonbrewing.com/
[3] Ibid