Market share out, Dollar share in..

The ongoing cut throat competition among marketers to get the maximum value delivered
to the customer and in turn generate long term sustainable revenues for the companies has
led to many a measure of how much of the market they command over.

We have had concepts like market share as a percentage of the market a particular
company’s product or a company has captured. However it does not give the true picture
at the micro level.

The market share captures the overall macro view of the state of competition, but with
competition ever growing and economics taking a tumble, it has become imperative for
companies to move along the continuum from general market targeting to targeting
individual customer. In this regard, it becomes imperative to measure the Dollar share a
particular company commands with respect to every customer. I hereby, define Dollar
share of an individual as the ratio of the amount of money spent by an individual on a
particular product or services to the total income of the individual.

Dollar share = Amount spent on a particular product or services / Total Annual income

This measure would give an insight on how much every individual is spending on a
particular product or service, in comparison to others. It can be used irrespective of the
income of the individual, but a word of caution: for a reasonable comparison to be made,
it must involve grouping the population on certain income brackets. Only individuals
belonging to same income groups may be compared with others belonging to the same
group. The comparison can also be made inter income group, but inferences must be
made with caution.

For the sake of simplicity, let’s take only two individuals A and B whose Dollar share we
wish to find.

Say, A spends $ 200 per month on a particular product C (say cable Tv) and his annual
income is $ 1,00,000.

Then the Dollar share of the product C would be = (200 x 12) / 1,00,000 = 0.024

Again, say B spends $ 200 per month on a particular product C and his annual income is
$ 10,00,000.

Then the Dollar share of the product C would be = (200 x 12) / 10,00,000 = 0.0024

In the above example A spends for every Dollar of his income $ 0.024 or 2.4% on
consuming C, while B spends for every Dollar of his income $ 0.0024 or 0.24% on
consuming C.

It means for product C, the individual A contributes more for every Dollar of the income
of the individual, than the individual B. Hence the company can identify two different
groups for targeting: one a low income high spending segment and the other a high
income low spending segment, thus the Dollar share can equip marketers with the tool
the identify better the segments on the basis of lifestyles, buying behaviour and can help
identify potential competitive spending behaviour1 of the consumer.

This analysis of Dollar share can enable marketers to better understand the purchasing
behaviour of customer and make effective strategies to enhance their market position by
more effective targeting and promotions.

Such an analysis can help better understand the consumer behaviour and then would help
in segregating them into clusters. In terms of B2C marketing such an analysis would be
rigorous as a huge chunk of data has to be complied, but in case of B2B marketing the
data can be collected reasonably easily, because the overall consumption figures are
readily available.

This Dollar share analysis can also have another variant, where instead of taking the
annual income of the individual we take the net disposable income for calculation.

1. Potential competitive spending behaviour is when the consumer is evaluating spending

on products of competitors or other general spending.