Hi!

This is a nice exercise in top-down thinking. Let me give you a step-by-step description.

1. Define your objective/focus metric. Market Share is not universally defined, so you need to define it before you can structure the problem. --> The most common definition for Market Share is (Our Revenue) / (Market size). Hence, a loss of market share mathematically means that the numerator becomes smaller relative to the denominator. Or in other words, our revenue becomes smaller relative to the market size. So losing market share happens if either (a) our revenue grows slower than the market, or (b) our revenue declines faster than the market.
2. Identify how the market entry impacts each of the two drivers of market share (i.e., our revenue and the market size). It is not very plausible to expect the market size (the denominator) to grow because of a new player emerging. This means that most probably, you will have to check whether this new competitor will cause our revenue (the numerator) to decline.
3. In order to run this check, we disaggregate revenue into its numerical drivers (e.g., number of coffees sold and average price per coffee), and then analyze how each of these drivers could be affected by a new competitor. This is where qualitative and contextual information comes into play during the analysis! The most obvious impact would consider the quantity of coffees sold - especially if the coffee quality and the accessibility of the new competitor is good. But it could also impact the price point that can be realized, if this competitor offers structurally lower prices. All of these points need to be discussed with the interviewer during the analysis.
4. Now that you have identified the principle mechanism, you can try and estimate how much each driver would be affected, and substantially derive a quantification of your expected market share loss. Here, it might make sense to work with scenarios.

I hope this is helpful. :)

Cheers, Sidi

Hi there,

Also important is context for this. Do you understand the 4 main types of competition and how they affect firms' behaviour? Do you also know what industries (and brands) fall into each?

If not, the following two articles provide a nice summary:

1) https://bizfluent.com/info-7904519-types-competition-economics.html

2) https://saylordotorg.github.io/text_exploring-business-v2.0/s05-05-monopolistic-competition-oligo.html

The key differences in each of these markets fall along the following lines:

• # of competitores
• Price competition
• Product differentiation (relates to price competition)
• Substitutability of products (also relates to price competition)
• Margins
• Barriers to entry (natural and legal)