Market share vs revenue

BCG Bain McKinsey
New answer on May 24, 2020
8 Answers
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Anonymous A asked on May 20, 2020

Would the structure for a case prompt ".. is having decreasing revenues" be different from ".. is having decreasing market share?" According to me they are synonymous and would be approached the same way. Additionally, if the case had ".. is having decreasing profitablity" then an element of costs come into the picture as well. Would this be a correct assessment?

Thank you!

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Ian
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updated an answer on May 21, 2020
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Hi,

Lots of great explanations below, but I fear they might be difficult to truly conceptualize.

Let's start with a pie!

If there's a pie in front of us, that is the market. We'll call it 100 units of pie

We cut the pie in half - one piece (50 pie units) for you, and one piece (50 pie units) for me

Scenario 1: We do nothing, we both have 50% market share.

Scenario 2: I eat half my pie. My pie slice is now 25 units, yours is still 50 units. As a result, you have 67% of the market share and I have 33%. My "revenues" have fallen AND my market share has fallen. Your revenues haven't changed BUT you've gained market share

Scenario 3: Not only do I eat half my pie, but you also eat 20% of yours. Still, I ate more, so even though your "revenues" are down, you've still gained market share.

Scenario 4: We both get given more pie (yay). BUT, I get a whole other 50 units, and you only get 5 more. Your "revenues" are up, but you've still lost market share!

I've created the below image for you to visualize this better (click on it to blow it up)...hope this helps!

Table market share

(edited)

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Sidi
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replied on May 20, 2020
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers

Hi!

No it is NOT synonymous! This is a nice example why you have to always first align on the definition of your focus metric. You can not just assume something!

"Market Share" is not universally defined. The most common definition is probably "Revenue divided by Market size". But the definition differs by industry. Sometimes it is not about revenue, but about number of customers. Or about volume. Or something completely crazy, like balance sheet size (this is the case in Banking!). So before you start with anything, you have to define your focus metric.

And even if it is Revenue - decline in market share does NOT mean that revenue is decreasing! IT means that the numerator (Revenue) becomes smaller RELATIVE to the denominator. So you can also lose market share with growing revenue - if the market grows faster.

Hope this helps!

Cheers, Sidi

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Emily
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replied on May 20, 2020
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Hi,

No, they are not the same.

First, you need to ask how is market share defined - by revenue ($) or by transactions (#). It is not always by $. E.g. In the early days of ride hailing, the market share could be defined by the number of rides a company is doing compared to the total demand.

Even when market share is defined by revenue ($), decline in revenue might not always result in decline in market share, if the total market is shrinking equally or even faster. E.g. the client used to count for $10 out of a market of $50 (20% share); but now the client revenue is $8, but the total market shrink to $40, revenue declined by market share would stay at 20%.

On your profitability question, again hey are no always to same, but it would be a good practice to examine the costs side for sure.

Best,

Emily

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Francesco
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replied on May 21, 2020
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Hi there,

assuming that market share is in terms of revenues, it would be equal to:

MS=Company Revenues/Market Size

Thus, you may have a decline in market share if the company revenues stay the same and the market size grows.

In terms of a profitability case: yes, you should consider costs as well.

Hope this helps,

Francesco

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Axel
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replied on May 20, 2020
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Yes, they are different because the market share depends on the relative movement of the company's revenue and the size of the market. For example, a company's revenue could be decreasing but still see increasing market share if the overall market size is declining faster than the company's revenue.

Having decreasing profitability would imply that you need to look into costs also. You could see declining revenue and growing costs at the same time.

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Anonymous replied on May 20, 2020

Hello,

Losing income does not directly imply losing market share, and vice versa.

Indeed, there are two reasons why you can lose market share: either because your income is falling, or because it is not growing fast enough compared to market growth. So don't forget to look at market dynamics in addition to income when investigating at changes in market share.

Finally, you're absolutely right: you should also look at any cost increases when you are looking at the profitability declines.

Hope it helps.

David

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Clara
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replied on May 21, 2020
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Yes, it´s totally different stuff and points to a totally different case?

Why?

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Robert
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replied on May 24, 2020
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Hi Anonymous,

While the revenue usually refers to the revnue of a company, the market share is the ratio of your revenue vs. all firms revenue in this market. Therefore, those 2 aspects are not the same, since for the decreasing market share you need to understand the development of all other players in the market as well.

For profitability, also cost need to be considered, yes.

Hope that helps - if so, please be so kind and give it a thumbs-up with the green upvote button below!

Robert

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Ian gave the best answer

Ian

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