Friday, September 10, 2010

How Much Market Share Should You Have?

I showed you how to calculate your Market Share. Hopefully you did that. It's a real eye-opener when you see how much (or little) of your market you actually own.

Your first thought was to wish it was higher. But how high is realistic? It depends on a few factors, some of which you have no control.

The Factors
Competition is your biggest factor. How many other stores are in your industry? How well do they do their job? How much crossover of product is there? How well do you do your job? How much marketing do they do? How much marketing do you do?

In my market of roughly 160,000 people we have a Toys R Us (plus the new pop-up TRU Express store), Wal-Mart, Target, 2 K-Marts, and 2 Meijer's. At Christmas time we also have to deal with the toy departments at Sears, Kohl's and JC Penney. That's a lot of competition for a shrinking piece of pie.

Fortunately for us, while they all spend enormous amounts on advertising, almost all of it goes towards the Transactional Customer. And most of our product selection cannot be found in their stores. Customer Service? Ours is much better (or at least it better be:-).

Not a Level Playing Field
But as an independent store most of us have an uphill battle in the market share game.

First, only about 9% of the population (heard this multiple times but still looking for source for this stat) are pre-positioned to shop at an independent retail store.

Second, most independents are far below the big chains in name recognition. Not surprising considering the huge ad dollars these chains can spend.

Third, independent stores are perceived as having higher prices and lower selections. Whether true or not, this perception is the reality in the public's mind.

Therefore, a typical independent store is likely to have only 4-6% share of the market. If you are above that, you're doing things right. If you are above 10% then you are really on the right track because you have convinced people not predetermined to shop local to still shop with you. And if you are over 15%, you rock!

Roy H. Williams likes to point out that 30% is the gold standard for any one business in any one market. If you have 30% of the market, you own that market. Just don't expect to grow much more. Even Wal-Mart only has 10% of the retail market, and is lucky to top 20% in any category. Sure, some Wal-Marts have that mythical 30% in certain markets, but mainly because they are the only game in town.

Where to Go From Here
But as an independent retailer, if you have 15%, it will take some nifty circumstances to grow much higher. And the higher you go, the tougher the battle. Once you have reached a high point in your market in one category, the only way to grow is add a new category.

That is what I am doing right now - researching new categories for my store. Although we will still go after higher market share in the current categories, our market potential is shrinking. So adding new categories gives me the best opportunity to grow our business.

And how will I pick which categories to enter? You guessed it - by calculating the Market Potential and seeing if 5% of that market is worth my time and resources. I am currently evaluating Teacher Supplies, Crafts, Juvenile Furniture and others to see which has the most potential, the fewest competitors, the best opportunity to jump in and take a piece of the pie.

Without knowing how to calculate Market Potential, this exercise is futile. But armed with that knowledge, I know we'll pick the best way to be successful.

Make sense?

-Phil

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