Market share matrix: Competitive Positioning: Using the Market Share Matrix

1. What is market share matrix and why is it important for competitive positioning?

A market share matrix is a tool that helps businesses analyze their competitive position in a given market. It compares the relative size and growth rate of different products or segments, and identifies the opportunities and threats for each one. By using a market share matrix, businesses can gain insights into their strengths and weaknesses, and devise strategies to improve their performance and profitability.

There are different types of market share matrices, such as the BCG matrix, the GE-McKinsey matrix, the Ansoff matrix, and the ADL matrix. Each one has its own advantages and disadvantages, and can be applied to different situations and objectives. Some of the benefits of using a market share matrix are:

1. It helps businesses understand their current situation and their potential for growth.

2. It helps businesses allocate their resources and investments more effectively and efficiently.

3. It helps businesses identify and exploit their competitive advantages and differentiate themselves from their rivals.

4. It helps businesses anticipate and respond to changes in the market and customer preferences.

5. It helps businesses set realistic and achievable goals and measure their progress and performance.

A market share matrix is not a static or fixed tool, but a dynamic and flexible one. It should be updated regularly to reflect the changes in the market and the business environment. It should also be complemented by other tools and methods, such as SWOT analysis, Porter's five forces analysis, and value chain analysis, to provide a more comprehensive and holistic view of the business situation.

One example of how a market share matrix can be used for competitive positioning is the BCG matrix, which was developed by the boston Consulting group in the 1970s. The BCG matrix classifies products or segments into four categories based on their market share and market growth rate: stars, cash cows, question marks, and dogs. Each category has different implications and recommendations for the business strategy. For instance, stars are products or segments that have a high market share and a high growth rate, and are considered to be the leaders and the most attractive in the market. They generate high revenues and profits, but also require high investments to maintain their position and growth. The strategy for stars is to invest in them to sustain their competitive advantage and market leadership, and to use their cash flow to support other products or segments. On the other hand, dogs are products or segments that have a low market share and a low growth rate, and are considered to be the weakest and the least attractive in the market. They generate low revenues and profits, and may even incur losses. The strategy for dogs is to divest or discontinue them, and to use the freed resources for other products or segments. By using the BCG matrix, businesses can determine which products or segments are the most valuable and promising, and which ones are the most problematic and unprofitable, and adjust their strategies accordingly.

2. Leader, Challenger, Follower, and Niche

The market share matrix is a useful tool for analyzing the competitive position of a company or a product in a given market. It divides the market into four quadrants based on two dimensions: relative market share and market growth rate. Each quadrant represents a different type of competitive strategy that a company can adopt to achieve its goals. Let's explore each quadrant in more detail:

1. Leader: This quadrant is for the companies or products that have the highest market share in a high-growth market. They are the dominant players that enjoy economies of scale, brand loyalty, and customer satisfaction. They have the resources and capabilities to invest in innovation, marketing, and expansion. Their main challenge is to maintain their leadership position and fend off the challengers. An example of a leader is Apple in the smartphone market, which has a loyal customer base, a strong brand image, and a continuous stream of innovative products.

2. Challenger: This quadrant is for the companies or products that have a lower market share than the leader, but are in a high-growth market. They are the ambitious and aggressive players that aim to challenge the leader and gain more market share. They have the potential and motivation to grow faster than the market average. They often adopt strategies such as differentiation, niche targeting, or price competition. Their main challenge is to overcome the barriers to entry and the advantages of the leader. An example of a challenger is Samsung in the smartphone market, which has a diverse product portfolio, a global presence, and a competitive pricing strategy.

3. Follower: This quadrant is for the companies or products that have a lower market share than the leader, but are in a low-growth market. They are the conservative and passive players that follow the leader and avoid direct confrontation. They have a stable and profitable business, but lack the ambition and innovation to grow faster than the market average. They often adopt strategies such as imitation, cost reduction, or customer retention. Their main challenge is to survive in a mature and saturated market. An example of a follower is LG in the smartphone market, which has a similar product range as Samsung, but a lower market share and a weaker brand image.

4. Niche: This quadrant is for the companies or products that have a high market share in a low-growth market. They are the specialized and focused players that cater to a specific segment of the market that has unique needs or preferences. They have a loyal and niche customer base, a strong differentiation, and a high profit margin. They have the opportunity and flexibility to innovate and expand their niche. Their main challenge is to protect their niche from the encroachment of the leader or the challenger. An example of a niche is OnePlus in the smartphone market, which has a high market share in the premium segment, a loyal fan community, and a distinctive product design.

3. How to calculate market share and relative market share for your business and competitors?

One of the most important aspects of competitive positioning is understanding how your business and your competitors perform in the market. This can be measured by two key indicators: market share and relative market share. These metrics can help you assess your current position, identify your strengths and weaknesses, and plan your future strategies. In this segment, we will explain how to calculate market share and relative market share for your business and competitors, and how to use them in the market share matrix.

- market share is the percentage of the total sales or revenue in a given market that is generated by your business. It can be calculated by dividing your sales or revenue by the total sales or revenue in the market. For example, if your business sells $10 million worth of products in a market that has a total sales of $100 million, your market share is 10%.

- Relative market share is the ratio of your market share to the market share of your largest competitor. It can be calculated by dividing your market share by the market share of your largest competitor. For example, if your market share is 10% and your largest competitor's market share is 20%, your relative market share is 0.5.

- The market share matrix is a tool that plots your business and your competitors on a two-dimensional graph, where the x-axis represents relative market share and the y-axis represents market growth rate. The matrix has four quadrants: leaders, challengers, followers, and nichers. Each quadrant has different implications for your competitive positioning and strategic actions. For example, leaders have high relative market share and high market growth rate, which means they have a strong position and can enjoy economies of scale and high profits. However, they also face high competition and need to invest in innovation and customer retention.

To illustrate how to use the market share matrix, let us consider an example of a hypothetical market for smartphones. The table below shows the market share and market growth rate of four smartphone brands: Apple, Samsung, Huawei, and Xiaomi.

| brand | Market share | Market Growth Rate |

| Apple | 30% | 15% |

| Samsung| 25% | 10% |

| Huawei | 20% | 5% |

| Xiaomi | 15% | 20% |

Using the formulae above, we can calculate the relative market share of each brand as follows:

| Brand | Relative Market Share |

| Apple | 30% / 30% = 1 |

| Samsung| 25% / 30% = 0.83 |

| Huawei | 20% / 30% = 0.67 |

| Xiaomi | 15% / 30% = 0.5 |

We can then plot these values on the market share matrix, as shown below:

![Market Share Matrix](https://i.imgur.com/8yQxY2j.

4. How to plot your business and competitors on the market share matrix and identify your current position?

The market share matrix is a tool that helps you analyze your competitive position in relation to your rivals. It plots the relative market share and growth rate of different products or business units on a two-dimensional grid. The matrix has four quadrants: stars, cash cows, question marks, and dogs. Each quadrant represents a different strategic implication for your business.

To plot your business and competitors on the market share matrix, you need to follow these steps:

1. Define the market and the product category that you want to analyze. For example, if you are a smartphone manufacturer, you might want to look at the global smartphone market and the different segments within it (such as premium, mid-range, and low-end).

2. Collect data on the market size, growth rate, and market share of your business and your competitors. You can use sources such as industry reports, market research, or your own sales data. You might need to estimate some of the figures if they are not readily available.

3. Calculate the relative market share of your business and your competitors by dividing their market share by the market share of the largest competitor. For example, if your market share is 10% and the largest competitor has 40%, your relative market share is 0.25 (10/40).

4. Plot your business and your competitors on the market share matrix using the relative market share as the x-axis and the market growth rate as the y-axis. You can use a spreadsheet software or a graphing tool to create the matrix. You can also label the quadrants and the products or business units accordingly.

5. Identify your current position on the matrix and the implications for your strategy. Depending on which quadrant you are in, you might need to invest, harvest, divest, or maintain your product or business unit. For example, if you are in the star quadrant, you have a high market share and a high growth rate, which means you have a strong competitive advantage and a large potential for growth. You should invest in your product or business unit to maintain or increase your market share and profitability.

Here is an example of a market share matrix for the global smartphone market in 2023, based on hypothetical data:

| Market growth Rate | high (>10%) | Low (<10%) |

| High (>1.0) | Star | Cash Cow |

| Relative Market Share | | |

| Low (<1.0) | Question Mark | Dog |

| Product | Market share | Relative Market Share | Market growth Rate | Quadrant |

| iPhone | 30% | 1.0 | 15% | Star |

| Samsung | 30% | 1.0 | 12% | Star |

| Huawei | 15% | 0.5 | 8% | Cash Cow |

| Xiaomi | 10% | 0.33 | 20% | Question Mark |

| Oppo | 5% | 0.17 | 5% | Dog |

| Others | 10% | 0.33 | 10% | Question Mark |

As you can see from the matrix, iPhone and Samsung are the market leaders with high market share and high growth rate. They are in the star quadrant, which means they have a strong competitive advantage and a large potential for growth. They should invest in their products to maintain or increase their market share and profitability.

Huawei is in the cash cow quadrant, which means it has a high market share but a low growth rate. It has a stable and profitable product that generates a lot of cash for the business. It should harvest its product by reducing its investment and maximizing its returns.

Xiaomi, Oppo, and Others are in the question mark and dog quadrants, which means they have low market share and low or high growth rate. They have weak competitive positions and uncertain prospects. They should either divest their products by selling or discontinuing them, or invest in them selectively to improve their market share and profitability.

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5. How to interpret the market share matrix and understand the strengths and weaknesses of each position?

The market share matrix is a tool that helps businesses analyze their competitive position in a given market. It compares two dimensions: the relative market share and the market growth rate. Based on these factors, the matrix divides the market into four quadrants: stars, cash cows, question marks, and dogs. Each quadrant represents a different type of product or business unit, and has its own strengths and weaknesses. Let's look at each quadrant in more detail:

1. Stars: These are products or business units that have a high market share in a fast-growing market. They are the leaders in their category and have a strong competitive advantage. They generate a lot of revenue and profit, but they also require a lot of investment to maintain or increase their market share. Stars are attractive for long-term growth, but they can also be risky if the market growth slows down or the competition intensifies. Examples of stars are Apple's iPhone, Netflix, and Tesla.

2. Cash cows: These are products or business units that have a high market share in a slow-growing or mature market. They are well-established and have a loyal customer base. They generate a lot of cash flow and profit, but they do not require a lot of investment to sustain their market share. Cash cows are attractive for short-term profitability, but they can also be vulnerable if the market changes or new entrants emerge. Examples of cash cows are Coca-Cola, Microsoft Windows, and McDonald's.

3. Question marks: These are products or business units that have a low market share in a fast-growing market. They are potential stars, but they face a lot of uncertainty and competition. They require a lot of investment to gain market share and become profitable, but they may also fail to do so and become dogs. Question marks are attractive for innovation and experimentation, but they can also be costly and risky. Examples of question marks are Spotify, Uber, and Airbnb.

4. Dogs: These are products or business units that have a low market share in a slow-growing or declining market. They are the weakest in their category and have a low competitive advantage. They generate little or no revenue and profit, and they may even incur losses. They do not require a lot of investment, but they also do not offer any growth or profitability opportunities. Dogs are unattractive for any business objective, and they may be candidates for divestment or termination. Examples of dogs are Kodak, Blockbuster, and Blackberry.

6. Grow, Hold, Harvest, or Divest

The market share matrix is a useful tool for analyzing the competitive position of a business unit or a product in relation to its industry and its competitors. However, having a high or low market share is not enough to determine the optimal strategy for a business. It is also important to consider the growth rate of the market, the profitability of the product, and the strategic objectives of the business. Depending on these factors, a business may choose to pursue one of the following four strategies: grow, hold, harvest, or divest.

- Grow: This strategy is suitable for products or business units that have a high market share in a high-growth market. The goal of this strategy is to invest in the product to increase its market share and maintain its competitive advantage. For example, Apple's iPhone has a high market share in the smartphone market, which is still growing rapidly. Apple invests heavily in research and development, marketing, and customer service to keep its loyal customers and attract new ones.

- Hold: This strategy is suitable for products or business units that have a high market share in a low-growth market. The goal of this strategy is to maintain the current market share and profitability of the product without investing too much. For example, Coca-Cola's soft drinks have a high market share in the mature beverage market. Coca-Cola focuses on maintaining its brand image, distribution network, and customer loyalty, while avoiding unnecessary costs and risks.

- Harvest: This strategy is suitable for products or business units that have a low market share in a low-growth market. The goal of this strategy is to generate cash from the product by reducing costs and investments. For example, Kodak's film products have a low market share in the declining photography market. Kodak reduces its spending on production, marketing, and innovation, and tries to maximize its profits from the existing customers and assets.

- Divest: This strategy is suitable for products or business units that have a low market share in a high-growth market. The goal of this strategy is to sell or exit the product or business unit, as it is unlikely to generate enough returns or compete effectively in the market. For example, Nokia's mobile phones have a low market share in the growing smartphone market. Nokia decided to sell its mobile phone business to Microsoft in 2013, and focus on its other businesses such as network equipment and software.

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7. How to implement your competitive strategy and measure your progress and performance?

Once you have identified your competitive position and your strategic objectives using the market share matrix, you need to implement your competitive strategy and measure your progress and performance. This is a crucial step to ensure that your actions are aligned with your goals and that you can adjust your strategy as needed. There are several aspects to consider when implementing and measuring your competitive strategy, such as:

1. Choosing the right metrics: Depending on your competitive position and your strategic objectives, you need to select the appropriate metrics to track your performance and progress. For example, if you are a leader and your objective is to maintain your market share, you might want to measure your customer retention rate, your brand awareness, and your customer satisfaction. If you are a challenger and your objective is to increase your market share, you might want to measure your market penetration, your customer acquisition cost, and your customer lifetime value.

2. Setting realistic targets: Based on your metrics, you need to set realistic and achievable targets for your competitive strategy. You should consider your current situation, your available resources, and your potential challenges. You should also benchmark your targets against your competitors and the industry standards. For example, if you are a follower and your objective is to catch up with the leader, you might want to set a target of increasing your market share by 10% in the next year, which is ambitious but realistic given your capabilities and the market conditions.

3. Implementing effective actions: Based on your targets, you need to implement effective actions that will help you achieve your competitive strategy. You should consider your strengths, weaknesses, opportunities, and threats, and design your actions accordingly. You should also prioritize your actions based on their impact, urgency, and feasibility. For example, if you are a niche player and your objective is to differentiate yourself from the mass market, you might want to implement actions such as launching a new product line, creating a loyal community, and offering personalized services.

4. monitoring and evaluating your results: Based on your actions, you need to monitor and evaluate your results regularly and compare them with your targets and metrics. You should use data and feedback to assess your performance and progress, and identify any gaps or issues. You should also celebrate your achievements and recognize your efforts. For example, if you are a leader and your objective is to maintain your market share, you might want to monitor and evaluate your results every quarter, and reward your team for retaining your customers and enhancing your brand image.

By following these steps, you can implement your competitive strategy and measure your progress and performance effectively. You can also use the market share matrix as a tool to review your competitive position and your strategic objectives periodically, and revise your strategy as needed. By doing so, you can ensure that you are always ahead of the competition and that you are creating value for your customers and your business.

8. Key takeaways and best practices for using market share matrix for competitive positioning

The market share matrix is a powerful tool for analyzing the competitive position of a company and its products in a given market. It can help identify the strengths and weaknesses of the company, as well as the opportunities and threats from the competitors. By using the market share matrix, a company can devise effective strategies to improve its market share, profitability, and growth. Some of the key takeaways and best practices for using the market share matrix are:

- 1. Understand the dimensions of the matrix. The market share matrix consists of two axes: the relative market share and the market growth rate. The relative market share is the ratio of the company's market share to the market share of the largest competitor. The market growth rate is the annual percentage change in the size of the market. The matrix divides the market into four quadrants: stars, cash cows, question marks, and dogs. Each quadrant represents a different type of product and requires a different strategy.

- 2. Assess the current position of the products. The company should plot its products on the market share matrix based on their relative market share and market growth rate. This will help the company to see how its products are performing in the market and how they compare to the competitors. The company should also analyze the factors that affect the position of the products, such as customer preferences, technological changes, pricing, distribution, promotion, etc.

- 3. Determine the desired position of the products. The company should decide where it wants its products to be on the market share matrix in the future. This will depend on the company's objectives, resources, and capabilities. The company should also consider the potential movements of the competitors and the market. For example, a company may want to move its question marks to stars by increasing its market share in a high-growth market, or it may want to maintain its cash cows by defending its market share in a low-growth market.

- 4. develop and implement the appropriate strategies. The company should formulate and execute the strategies that will help it achieve its desired position on the market share matrix. The strategies may vary depending on the quadrant of the product. For example, a company may use the following strategies for each quadrant:

- Stars: Invest in the product to maintain or increase its market share and growth rate. Use the product to generate cash and profits, as well as to gain a competitive advantage in the market.

- Cash cows: Harvest the product to maximize its cash flow and profitability. Use the product to fund the growth of other products, as well as to maintain a loyal customer base in the market.

- Question marks: Evaluate the product to determine its potential and viability. Use the product to explore new opportunities and markets, as well as to challenge the competitors.

- Dogs: Divest the product to minimize its losses and risks. Use the product to exit the market or to sell it to another company.

An example of a company that uses the market share matrix effectively is Apple. Apple has a portfolio of products that span across different quadrants of the matrix. For instance, the iPhone is a star product that has a high market share and growth rate in the smartphone market. Apple invests heavily in the iPhone to maintain its leadership position and to innovate its features and design. The iPad is a cash cow product that has a high market share but a low growth rate in the tablet market. Apple harvests the iPad to generate cash and profits, as well as to support its ecosystem of products and services. The Apple Watch is a question mark product that has a low market share but a high growth rate in the smartwatch market. Apple evaluates the Apple Watch to determine its potential and viability, as well as to explore new opportunities and markets. The iPod is a dog product that has a low market share and growth rate in the music player market. Apple divests the iPod to minimize its losses and risks, as well as to exit the market or to sell it to another company.

By using the market share matrix, Apple can manage its product portfolio effectively and efficiently. It can also leverage its strengths and overcome its weaknesses, as well as capitalize on its opportunities and mitigate its threats. The market share matrix is therefore a valuable tool for competitive positioning and strategic management.