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Market share models are used frequently by marketing managers to analyze the market situation. These models undoubtedly provide valuable insight but can they be used to set future strategy? This thesis asks: ‘Can we define optimal strategies using market share models?’
Approach
This research project focused on market share models and, in particular, the so-called ‘attraction model,’ which is very well suited to competitive analysis. By modelling attraction, instead of market shares, it is possible to specify a model that describes a complete market, whilst ensuring that market shares lie between zero and one. Moreover, all market shares forecast by an attraction model will sum to 1. This may appear trivial, but many market share models do not have these features. To determine optimal strategies, we used game theory concepts. We assumed that competitors either do not respond or they respond optimally. Furthermore, we assumed that while competitors may observe an action in the week it is used, they can respond only in the next week i.e. there is a time-lag between observation and reaction. To find a one-period optimal strategy for a brand, we determined a set of strategies for the brand and modelled competitors’ reaction to each possible situation. The assumption was made – based on the market share attraction model — that competitors would choose the action that maximizes profit. Given this set of actions and reactions, we used the market share model to determine which action would be optimal for the brand.
Results
We applied this approach to two sample datasets and found that optimal strategies can certainly be determined using the market share model. The results also illustrated the varying power of brands: Some have many possibilities, while others are only suited to very basic strategies.
Careers Students
Market Share Modelling
Market share models are used frequently by marketing managers to analyze the market situation. These models undoubtedly provide valuable insight but can they be used to set future strategy? This thesis asks: ‘Can we define optimal strategies using market share models?’
Approach
This research project focused on market share models and, in particular, the so-called ‘attraction model,’ which is very well suited to competitive analysis. By modelling attraction, instead of market shares, it is possible to specify a model that describes a complete market, whilst ensuring that market shares lie between zero and one. Moreover, all market shares forecast by an attraction model will sum to 1. This may appear trivial, but many market share models do not have these features. To determine optimal strategies, we used game theory concepts. We assumed that competitors either do not respond or they respond optimally. Furthermore, we assumed that while competitors may observe an action in the week it is used, they can respond only in the next week i.e. there is a time-lag between observation and reaction. To find a one-period optimal strategy for a brand, we determined a set of strategies for the brand and modelled competitors’ reaction to each possible situation. The assumption was made – based on the market share attraction model — that competitors would choose the action that maximizes profit. Given this set of actions and reactions, we used the market share model to determine which action would be optimal for the brand.
Results
We applied this approach to two sample datasets and found that optimal strategies can certainly be determined using the market share model. The results also illustrated the varying power of brands: Some have many possibilities, while others are only suited to very basic strategies.