April 25, 2016

Assessing the Real Value of a Market

By Mike Karst, Senior Partner

The elusive market share...you may think you know how big your piece of the pie is, but do you really know? And, is your market share data granular enough to allow you to make decisions?

Traditionally, companies get market share estimates that are extrapolated from bigger data sets. Manufacturers know their sales by each ship-to location, but they don’t have any insight into what else the retailer purchased from other suppliers, nor how many acres the retailer services. Lacking a better resource, the best they can do is pay for large market research studies that provide some insight into their market potential – even if they know it’s not completely accurate. 

Retailers know what they sell to farmers, but they don’t have a clear picture of the value of the market they can effectively service. So their best case scenario is to look at county-level data for planted acres and estimate how much of each county they may cover. 

To be honest, neither the manufacturer nor the retailer has a good way to measure their performance on a local level. And without that knowledge, how do they make plans for improvement?

Allocating Resources in the Smartest Way Possible

There are tremendous opportunities for various sectors of the industry in being able to see market value potential, as opposed to just an estimated market share figure. And, this point-of-view on market value can be a starting point in helping companies guide strategic decisions related to human and physical asset performance, and consolidation or expansion of assets.

Very few people know how many acres of a particular crop are planted in their service area. And without that basic fact, is it even possible to complete a market share analysis, market-by-market? We’re working on a tool that can do this. Keep in mind, not all markets are created equal—even regions in close proximity can be vastly different from one another when you take a closer look. Road systems and access, rivers and bridges, and land use patterns can alter the potential value of a location, territory or region. Understanding these impacts can create an even greater value in understanding the real picture at a more localized level.

We’ve helped several companies look at their sales by territory or location based on the potential market where they operate. In some cases, managers believed to be underperformers were actually leading their regions in share of their potential markets. Conversely, some others who had been viewed as high performers were shown to have a relatively low share of their potential market. While it is true that it’s the sales dollars that matter at the end of each year, we also encourage our clients to look at their share of the market at the most granular level possible, because that’s the best way to unequivocally identify their high performing managers.

What we’re working on is a tool that will be useful for retailers, distributors, manufacturers, crop insurance providers, or any entity that markets and sells crop production inputs, giving them an entirely new set of data and insight to use in planning and decision-making. Finding market value potential requires analytics and data mapping to understand market volume as well as capacity. By layering data together—including such variables as crop type, input categories, and personnel and physical assets—we can show a more detailed and meaningful picture from the broadest regional level all the way down to specific locations.

What it Means for Business

Once we go through the data layering and analytics to discover the real value potential of a market, it opens up so many new possibilities. Number one, it gives you a basis for rethinking your strategy. Relying on financial spreadsheets of sales figures will not take you nearly as far as adapting your strategy based on the volume-versus-capacity relationship. (In other words, how much room is left in the tank?)

Every location or territory has unique needs, and you must adjust accordingly so you are providing the right support. This model allows you to be more judicious in saying “yes” or “no”—so you can be more efficient with time and resources, and not be afraid to reallocate where necessary to get the most value from what you have. The key is to be sure you’re giving more weight to markets where there is potential. Allocate fewer resources in areas where you’ve already maxed out your potential, and instead put them where the tank is not yet full.

Watch for more information in coming weeks about Entira’s concept to rethink market share, using our proprietary databases, models and insight to understand market value potential. We’re excited about this endeavor and what it can do for our clients, and we can’t wait to tell you about it. If you have questions in the meantime, contact us at info@entira.net.