Relative market share

Definition

Relative market share is a business metric that compares a company's market share to that of its largest competitor in the same industry. This ratio helps businesses understand their position in the market relative to competitors, influencing strategic decisions like resource allocation and investment priorities.

5 Must Know Facts For Your Next Test

1. Relative market share is calculated by dividing a company's market share by the market share of its largest competitor.
2. A high relative market share indicates strong competitive positioning and may suggest that a company has more resources and capabilities than its competitors.
3. In the BCG Matrix, businesses with a high relative market share are categorized as 'Stars' or 'Cash Cows', which typically warrant more investment or resources.
4. A low relative market share can identify potential 'Question Marks' or 'Dogs' in the BCG Matrix, signaling the need for strategic re-evaluation or divestment.
5. Relative market share is vital for making informed decisions about where to allocate resources within a company’s portfolio, impacting long-term strategy.

Review Questions

• How does relative market share influence a company's strategic positioning in the BCG Matrix?
  • Relative market share plays a crucial role in determining where a business unit falls within the BCG Matrix. A higher relative market share positions a business unit as a 'Star' or 'Cash Cow', suggesting that it has strong competitive advantages and can generate significant revenue. This encourages companies to invest in these units further. Conversely, a lower relative market share may indicate that a business unit is struggling, categorizing it as a 'Dog' or 'Question Mark', which may require strategic reassessment.
• Discuss the implications of having a low relative market share for a company when using the GE-McKinsey Matrix.
  • In the GE-McKinsey Matrix, having a low relative market share indicates weaker competitive strength, which may diminish the unit's attractiveness for investment. Such business units are often found in less favorable positions, suggesting that they may require reevaluation of their strategies or even divestiture. This analysis helps companies prioritize resources toward more promising units that exhibit both high industry attractiveness and competitive strength.
• Evaluate how changes in relative market share can affect corporate strategy and decision-making over time.
  • Changes in relative market share can significantly impact corporate strategy by altering how resources are allocated among various business units. For instance, if a company's relative market share increases due to successful marketing or product development, it may lead to increased investments in growth initiatives for those units. On the other hand, if relative market share declines, it might prompt management to cut costs or even divest underperforming units. Consequently, ongoing analysis of relative market share is vital for adapting corporate strategies to remain competitive in changing markets.

Related terms

Market Share:

The portion of a market controlled by a particular company or product, expressed as a percentage of total sales in that market.

BCG Matrix:

A portfolio management tool that uses relative market share and market growth rate to categorize a company's business units into four quadrants: Stars, Question Marks, Cash Cows, and Dogs.

GE-McKinsey Matrix:

A strategic tool that evaluates business units based on industry attractiveness and competitive strength, allowing companies to prioritize investments across their portfolio.