expert
Expert with best answer

Sidi

99% Recommendation Rate

351 Meetings

2,002 Q&A Upvotes

USD 319 / Coaching

1

Market share vs profit share

Hey there,

I stumbled upon a case about baby helmets (L.E.K) that states that two dominant players have together 60% market share. Later, we need to calculate the total market profit and then have to figure out the market share that we need to achieve given our profit goal. They calculate it simply by dividing our profit goal by the total market profit.
Hence, the implicit assumption is that prices and costs per unit are the same for every player in the market? Otherwise we couldn't calculate this using the profits as market share is based on revenue and not profit right?

Hey there,

I stumbled upon a case about baby helmets (L.E.K) that states that two dominant players have together 60% market share. Later, we need to calculate the total market profit and then have to figure out the market share that we need to achieve given our profit goal. They calculate it simply by dividing our profit goal by the total market profit.
Hence, the implicit assumption is that prices and costs per unit are the same for every player in the market? Otherwise we couldn't calculate this using the profits as market share is based on revenue and not profit right?

1 answer

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Sidi

99% Recommendation Rate

351 Meetings

2,002 Q&A Upvotes

USD 319 / Coaching

Short answer: yes this is correct! You have to assume identical prices and costs.

If prices and costs differ, then you need to solve a slightly more complex problem:

1. Firstly you need to identify the volume which you need to sell to reach your target profit (using the usual equation: profit = (price*volume) - (marginal cost * volume) - fixed cost and solving for volume)

2. Secondly you convert the target volume to target revenue (easy, since the price is given)

3. Thirdly you now divide this target revenue by the market size to get your required market share

Cheers, Sidi

Short answer: yes this is correct! You have to assume identical prices and costs.

If prices and costs differ, then you need to solve a slightly more complex problem:

1. Firstly you need to identify the volume which you need to sell to reach your target profit (using the usual equation: profit = (price*volume) - (marginal cost * volume) - fixed cost and solving for volume)

2. Secondly you convert the target volume to target revenue (easy, since the price is given)

3. Thirdly you now divide this target revenue by the market size to get your required market share

Cheers, Sidi

(edited)

Related case(s)

OnlineGo

Solved 14.1k times
OnlineGo The client, OnlineGo, is a European Internet Service Provider (ISP) that is contemplating entering the North American market. Currently, they hold a dominant position in the European market with two streams of income; a subscription fee and taking a percentage of all e-commerce transactions done by subscribers. After studying the North American market, OnlineGo has concluded that the market is very divided and it is the perfect time to enter. You have been asked to calculate some figures to determine the potential profitability of entering the North American market.
4.4 5 458
| Rating: (4.4 / 5.0)

The client, OnlineGo, is a European Internet Service Provider (ISP) that is contemplating entering the North American market. Currently, they hold a dominant position in the European market with two streams of income; a subscription fee and taking a percentage of all e-commerce transactions done by ... Open whole case

Toothbrush disruption

Solved 10.9k times
Toothbrush disruption We are a global toothbrush producing company. Our portfolio consists of two kinds of toothbrushes - 'manual' that sells for $5 and an electric 'rechargeable' that sells for $60. Last year, a competitor introduced a battery-powered electric “spinbrush” that sells for $8.5 and now has 2% of the toothbrush market. We don't have a similar offering and would like you to tell us whether we should develop a similar product or not.
4.5 5 986
| Rating: (4.5 / 5.0)

We are a global toothbrush producing company. Our portfolio consists of two kinds of toothbrushes - 'manual' that sells for $5 and an electric 'rechargeable' that sells for $60. Last year, a competitor introduced a battery-powered electric “spinbrush” that sells for $8.5 and now has 2% of the toothb ... Open whole case

Premium Brand Apparel Retailer

Solved 6.8k times
Premium Brand Apparel Retailer We are a premium brand apparel retailer facing a consistent decrease in market share. We would like you to figure out why this is happening and provide recommendations to reverse this trend.
4.5 5 379
| Rating: (4.5 / 5.0)

We are a premium brand apparel retailer facing a consistent decrease in market share. We would like you to figure out why this is happening and provide recommendations to reverse this trend. Open whole case