Helping managers make decisions is the most important function of a market research report. In my view, the most important element within a market research report is a story. A clear story drives a message and increases your chances of successfully meeting your market research goals. In this lesson, we're going to discuss how you can create a story to structure your market research report. By the end of this lesson, you should be able to discuss methods for comparing your organization to other organizations, discuss how you can define your market size and competition and describe what part of those elements will play into your story. Let's look at an example to get started. Let's say objective is to increase sales. Pretty common, right? We all want to increase sales. So how does the report that you intend to produce help you understand what you need to do in order to achieve that objective? To address this issue, it is often recommended that you start working backwards. So let's say you want to increase sales from a particular demographic. The first step you may want to take is to see how you could identify the demographic. You can do this by working backwards from the objective that you want to increase sales for that particular group of people. Once you have set the objective you have for this demographic, you need to start thinking about how you can collect the data, and given the data, how you can build a more convincing case. There are many ways to do that, and we'll spend a large chunk of this course going over these. One of the ways you can tell a story is to compare the performance of your firm to the competition. Now, there are multiple ways to do that. For example, if you have sales data for each of your competitors, you could do something as simple as comparing your sales to your competitors' sales. But, more often than not, you have multiple competitors or your firm might be operating in several different markets. Due to this, one common metric often used to see how well you're doing is not just looking at your sales but also looking at your overall market share. There are two ways you can look at market share. You can look at it either via revenue or unit sales. Revenue market share is your sales revenue divided by the total market revenue. On the other hand, to calculate unit market share, you simply need to divide your firm's unit sales by the total market unit sales. Now, there might be specific reasons that you may want to use one of these market share metrics over the other. Unit market share differs from revenue market share in that you're simply looking at the number of units you sell rather than how much people paid for an item. Due to this issue, sales increases because of price promotions are treated no differently than those achieved organically. Given that prices paid in the two scenarios would be different, it might be important to track the source of such changes in your market share. Can you think of a situation where you might reduce your revenue but increase units sold? How about when your firm decides to put a unit on sale? A steep discount can reduce revenue but can increase the number of units sold. On the other hand, you could have a case where your market revenues impacted by exchange rates. Unit sales isn't really impacted by this but revenue certainly is. A unit of product A sold in market one or market two will remain the same, but if there are currency fluctuations between the two markets, then the value of the same unit of product A in market two might be very different from market one or might vary over time. When you look just at unit market share, you can work around this issue. It is fairly easy to define your market extremely broadly, but then, you're likely to dilute your focus. On the other hand, it's also easy to define your market too narrowly, and you might miss opportunities. For example, let's say you're a car company, and you intend to launch new car model. How do you define the market size for your car? Is it two-door cars, four-door cars, station wagons, SUVs, minivans or something else? Is your car entering a market of people carriers, or is it more aimed at equipment hauling? Or is it the car model entering a market where you have clearly defined the fact that you're building a sedan that is four-door and that's meant for a small family? These are all possible considerations, right? The way you define your market size will clearly determine how much market share you capture. If your market size is defined as an entire large car market that ranges from two-door sports cars to family minivan, then your market share is probably going to be extremely small, and you risk affecting the focus of your product. On the other hand, if you intend to sell just two-door sedans, then it's probably better for you to concentrate on the market for small cars, not just two-door small cars but also probably four-door small cars because you're really operating in the small car market in this case. Once you can define your market size, the next step is to define your competition. Who is a meaningful competitor in your space that you define as your market? Once you defined your competitor, you can then think about how your market share compares to your competitor. Now, you could use the measures that we discussed, revenue market share and unit market share, or you can construct another measure which is called relative market share metric. A relative market share metric is nothing but your market share percentage divided by the largest competitors' market share percentage. Using this metric, you don't only learn about how much of the market your product captures, but you also learn how you're doing compared to your competitors in the marketplace. Let us assume that you have a unit market share of 5%. Let us also assume that your largest competitor has a share of 10%. Then your relative market share is about 50%. This measure allows you to benchmark your change in market share versus your biggest competitor, thereby giving the change more meaning. If your market share grew from 5% to 7.5% while your competitors' market share just stayed even at 10%, then that would mean that you most likely performed better than your strongest competitor in the same market and possibly gained more ground in the marketplace. At this point, we have identified how our organization compares to competitors. We have an idea of the size of the market we're playing in, and we have narrowed down who our direct competitors are in the space that we're working in. These basic elements help us start building the story that will flow through our market research report. In upcoming lessons, we'll discuss further elements that help you define your market and where you fit into it overall.
