Hi!
I would appreciate if someone could help me with this question. (it's from a Bain sample case)
I've attached the chart (which has all the info needed) and the question.
The answer is 1,2 but I can not come up with that number! if anyone could give me a hint..
Thanks!!!
Hi!
The market size of a player in this graph is equal to the area of all its squares. Just by eyeballing it you should be able to say that RetailCo is the market leader and Player A is the number 2. Now you know which formula to use.
Next you can calculate the actual market size by adding up all the states for each player (share * total sales in the state).
Does this help?
You have four states in which RetailCo is active, and its RMS for each state is given below the mosaic plot (2.1, 0.8, 0.9 and 0.6). You can quickly confirm that these numbers are correct using the provided formula. Now, you need to calculate the overall RMS from the RMS values given for each state. Because the markets of the different states are not of the same size, you cannot calculate a simple average and be done with it, but need to calculate the weighted average, with the size of each of the markets ($2.3, $1.7, $1.4 and $1.0) being the weighting factor and the divisor being the total market size ($6.4). So the calculation you need to do is:
(2.1x2.3 + 0.8x1.7 + 0.9x1.4 + 0.6x1) / 6.4 = 1.26
This gives 1.2 as the closest answer. Hope this is correct and helps you out!
I don't think I can edit my comment, but want to point out that Jorrit's approach is correct. The approach I described has a logical error - you should look at the whole market first and then calculate the RMS for it. Interestingly, both approached lead to the same answer. This might be by design; however, the value calculated using his approach is significantly closer to 1.2. — Alexander on Mar 15, 2019
Hi,
Best
Doesn't this method give you the wrong answer in case market shares and order of competitors are vastly different across geographies? — Juho on Mar 18, 2019
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