Business blindness — what is your reporting keeping from you?

I once had occasion to ask a question of a retail management team. This was a fundamentally good business with a long history and with a large set of well-designed and well managed stores.

The question I asked was a simple one. I asked what their market share was.

The answer was a bit worrying. The information was not readily available in any form. This was not a management team that was used to keeping a close eye on its competitors or on trends in customer buying patterns — a red flag for any business.

Over my career, I’ve observed a strong correlation between those businesses which have a clear, frequently measured and widely discussed market share report, and those which win. There are, of course, reasons why market share reports sometimes send the wrong signal. An obsessive and wrong-headed over-focus on market share can lead to price wars, for example. But that is true of any single KPI and is the reason why strong businesses measure ‘balanced’ sets of measures. Within that balanced set, however, market share remains a galvanising metric. Are your customers choosing to do business with you, or with your rivals? Are the actions you are taking in the market place serving to increase your slice of the pie, or not?

Sometimes driving market share upwards is about encouraging customers to switch from a rival service to yours. Competitive markets like the mobile phone business often exhibit spectacularly aggressive marketing designed to generate switching — even targeting offers directly at competitor customers.

In other markets, however, the smartest way to drive up market share might be different. In the cinema business, for example, it is much easier to encourage your existing customers to visit your cinemas more often than it is to get someone who usually goes to a competitor to come to you. But by increasing the frequency of visit from your existing customers, mathematically you increase your market share because your slice of the pie grows faster than everyone else’s. As such, the market share KPI still works to focus the mind even when direct switching isn’t the best tactic.

But beyond driving short term trading behaviour, market share analysis is powerful for another reason. It connects you with the real behaviours being demonstrated by your customers on a daily and weekly basis. It becomes obvious how people are deciding who to do business with — whether on price or on service level, for example. It becomes obvious whether your customers are all alike, essentially one great mass of people, or whether there are distinct segments in the market who behave in different ways. And finally, it becomes obvious if there are longer term trends at work — are those behaviours and segments changing as time goes by.

The management team I asked about market share demonstrated the importance of this last point when they finally laid hands on the report and showed it to me. Although they were tracking the performance of their stores versus competing retail chains, the large internet sellers of their products were not even on the report.

When I asked why, the answer was staggering. Well, I was told, they just give our products away at cost price — there is nothing to be done about them, and so we don’t include them in the report.

Now that’s quite an extreme reaction to online competition, but I’ve seen echoes of the same thing in many different businesses and in many different markets. There is a natural human tendency to redefine the terms of the competition to one that we might win. The clothing retailer who sees Primark and the supermarkets selling party dresses for just a few pounds dismisses it as “not really the business we are in”. The vendor of business supplies who sees their highest margin products (printer ink, anyone?) get challenged online by generic alternatives consoles themselves with the thought that no ‘real’ business customer would switch to those inferior replacements.

But the end of those stories is always the same. In the end, the challenger business which disrupts your world by selling your high margin products for next to nothing will indeed steal your customers. If you ignore them, you just end up competing in a market which is shrinking fast as customers move to the alternative. Too many specialist retail businesses ended up the life and soul of a party that everyone else had already left.

The conclusion? Define your market carefully, being sure that you include all the same competitors that your customers would, not just the ones you think you can beat. Then use market share analysis as a key management tool to understand trends. And do that not just to compete week by week but also to drive the fundamental reinvention which new competition sometimes demands.

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