Demographics or demographic segmentation is among the techniques used by companies in segmenting markets. Under this approach, markets are determined according to a defined age, characteristics or traits, gender, race, education, etc. To illustrate this, let us say that the target market of an enterprise are millennials. Therefore, the company’s marketing campaign should focus on their clients, consumers, and customers whose demographics fall under millennials. Ideally, demographic segmentation must be applied on goods or services that have consumers with defined and distinct idiosyncrasies. Describing the market involves identifying the market share, market size, market growth, and competitive positioning.
According to an article published in Harvard Business Review, market share is considered extensively as among the key factors in the profitability of a business. Market share refers to the fraction of the total market controlled by a specific business. For instance, a group of consumers buy 100 toothpaste in which 60 of them are manufactured by Company X. Therefore, Company X has 60% of the market share. In mathematical terms,
Market Share = Firm’s Sales / Total Market Sales
Kinds of Market Share
There are two types of market share: value and volume. A value market share is described by the business’ overall shares out of its accumulated segment sales. On the contrary, a volume market share pertains to the exact quantity of the units the entity markets against the overall number of units sold in the market. The equation for the value-volume market share is not always linear. A value market share can be high while the volume market share is low.
Significance of Market Share
Market share illustrates the consumers’ predilection towards the company’s product against its competitors. Generally, a high market share translates to great sales. Furthermore, a growth in market share is a manifestation of the enterprise’s competitiveness. This can be attributed to advertising and/or marketing strategies, innovation, competitive pricing, and widening demographic interest.
Understanding the market also entails estimating the market size. Market size is a tool in determining the sheer volume of a specific market. It is necessary to fully comprehend the market size for it affects business decisions that are vital to the company, such as product development and creating partnerships.
According to marsdd.com, there are five steps on how to properly estimate the market size.
- Identify the target customers. Every businesses have to describe who are their target consumers. This can be achieved by profiling their usual customers and their likely consumers.
- Project the number of targeted customers. To quantify the market, businesses can utilize government and private research databases used in the industry such as Hoovers and U.S. Bureau of Economic Analysis.
- Establish the penetration rate. The idea here is to assume a high penetration rate for regulated or mission-critical products and low penetration rate for specialized products.
- Compute for the total market size. The total market potential or the total market volume can be calculated using this formula:
Market Volume = Number of Target Consumers x Penetration Rate
On the other hand, the market value can be identified using this equation:
Market Value = Market Volume x Average Value
5. Use the data
Market Growth and Competitive Positioning
Market growth and competitive positioning are also involved in describing the market. Market growth pertains to the expansion or growth in market shares due to swelling in consumer demands or because of competitive advantages. On the other hand, competitive positioning is focused on diversifying the company’s product(s) and creating value. It also assesses the company’s position in pursuance of development and in preserving an advantage.
As described in the book Business and Competitive Analysis, competitive positioning looks at the market share, client perceptions, existing market strategies, prices and costs, and competitors’ positions. Competitive positioning is useful when introducing new products or services in the market or in expanding the business.
There are several steps in creating a good positioning strategy. First is describe and/or analyze the market. This can be fulfilled by identifying the market size, key competitors and their position, and the market’s lifecycle stage. Next is segment the market. In here, businesses must recognize the problems or issues that the market is currently dealing with. Afterwards, establish how the value — operational efficiency, product leadership, or customer intimacy — will be delivered. Furthermore, assessing the competition, pinpointing their weaknesses, and focusing on these weaknesses will help companies create an effective positioning strategy.