Determinants of Market Share

Author(s): Doyle L. Weiss

Source: Journal of Marketing Research, Vol. 5, No. 3 (Aug., 1968), pp. 290-295
Published by: American Marketing Association
Stable URL: http://www.jstor.org/stable/3150346
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 DOYLE L. WEISS*

The economic well-being of a business firm can often be summarized in terms

of its market share. Market share responds to price, advertising expenditures,
retail availability, and product characteristics. Marketing managers are com-
pelled to understand the dynamics of market share behavior in these terms. This
article is an analysis of market share movements for a low-cost, frequently pur-
chased consumer product. It represents a first effort in understanding such move-
ments for marketing management's major decision variables.

Determinants of Market Share

The efficient conduct of all consumer-based enter- The four years of data represented the purchasing
prise requires an understanding of the relationships activities of 899 panel families who purchased 123
between consumer behavior and the short-term move- different brands. The participating families were origi-
ments of a firm's market share. Changes in market nally selected by the Family Survey Bureau through a
shares are a function of consumer-purchasing decisions, modified, stratified sampling plan.1 However, several
influenced by a variety of factors, both economic and problems developed with the panel's composition;
psychological. In the short run, however, the marketing and therefore, the 1960-63 data cannot be considered
manager can manipulate four major variables to influ- to result from a strict probability sample.
ence consumer-purchasing behavior and his brand's As expected, difficulty with nonresponse was present.
market share: (1) price, (2) advertising expenditures,Some families selected by the sampling plan would not
be panel members and keep records of their daily
(3) retail availability, and (4) physical product charac-
teristics. The critical question for the marketing manager
purchases. Alternate families with similar characteristics
in the short run is: What is the optimum mix for these had to be recruited. Moreover, some families, though
marketing variables? This question can only be an-
they joined the panel and consented to keep the neces-
swered after the form of the relationship between
sary records, failed to. Thus, their records are erroneous,
market share and these variables is established. The incomplete, or missing for periods of time.
purpose of the following study was to investigate thisThe attrition of panel families was also not uniform
relationship for a low-cost, frequently purchased,
across membership by age. Newer family members
brand-identified consumer product. had a higher dropout rate than did older members.

DA TA SO URCES 1 The Chicago Tribune panel was started in 1947 with 800 families.
The panel families were selected from an area sample conducted
The raw data supporting the subsequent empirical
for the Chicago Consolidated Area, which involved a complete
analysis were provided by the Chicago Tribune'scensus
Familyof residential blocks in the Chicago SCA using census
Survey Bureau, the Harvard Business School, and the Sanborn maps. Blocks were then stratified by area,
tracts and
using population as a control, and sampled on a random basis. A
marketing policy group of one of the industry's principal
complete enumeration of the dwelling units within the selected
firms. The material contained four years of family
blocks was made, and 5,813 households were randomly chosen to
purchase records and estimates of competitive advertis-
form a household pool. From this pool a stratified random sample
ing expenditures for the Chicago metropolitan(strata
market being race, family size, and family income) of 800 families
was selected to form the first panel. This pool of 5,813 households
area. At the request of the cooperating company, the
was used to replace families as needed. Because of aging, changing
name of the product class and identities of the income,
partici-
and changing size of families in the 1947 pool, it was neces-
pating brands are withheld. The product class is1955
sary in a to add 3,900 families to the pool by similar procedures.
Since 1955, the pool has occasionally not contained families with
low-cost consumer food item with high brand identifica-
tion and is sold in food markets and delicatessens. certain critical characteristics. Families with these characteristics
have been recruited from lists of families created by the Tribune
for other consumer surveys, occasionally by random recruitment
* Doyle L. Weiss is assistant professor of industrial administra-
in specific neighborhoods or suburbs, and by referrals through
tion, Purdue University.
other panel members for family types extremely difficult to locate.
290

Journal of Marketing Research,

Vol. V (August 1968), 290-5

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 DETERMINANTS OF MARKET SHARE 291

Sincethe compensation offered Figure 1 to particip

was small, attrition among newer
SEMI-YEARLY MARKET SHARE mem
more concentrated in the upper
(1960 THROUGH 1963) income
continuity problems for this important g
Besides these effects, panel data are of
because panel membership is though
economic behavior. Some marketing res
30
that the act of recording the attributes o
L---
makes the family hypersensitive to pri
compared with the balance of the popu
20C
Despite these difficulties, the
ALL OTHERS o sampl
/4
represents a continuous record of consu
behavior for a long
0 10 time. Also, the rese
----
associated with the use of panel data is
. ....................
in marketing research literature.
.... . . . .
60-1 60-2 61-I 61 2 62-1 62-2 63-1 63-2

2 3 4 5 6 7 8
THE PRODUCT CLASS
PERIODS

Although purchases were reported for 123 brands

over the four years, most were extremely andweak
spot lo-television advertising activities for the Chica
cal brands. The product class contains four strong market. They do not include expendi
metropolitan
brands (three national and one regional) that dominate
estimates for billboard, transit card, direct mail,
the market and control about 65 percent of thesuch
other total forms of advertising. These estimates
panel volume. Evidence of this dominance basedcan be on seen
monitoring reports from at least two age
in Figure 1, which shows market share movements
(Rorabaugh forand BAR) that track advertising expe
the nine largest brands and an "all other" classification.
tures by all advertisers.
Figure 1 shows that Brand 1 is consistently Economic the theory and marketing knowledge dict
strongest brand in the market with Brandsthat 2, 3,price
and 4 and advertising are two of the prim
having about equal shares.3 Brand 1 shows some on sales (and market share) of competi
influences
decline from this dominant position for the sample
consumer products. The importance of these varia
period, however, with its share changing in erratically
relation to others such as retail availability, pro
from approximately 30 percent of the market quality, at and
the packaging in determining a brand's s
beginning of the period to nearly 24 percent is notat easily
the determined a priori. It will depend
end.4 It appears that much of this change waswhether
associated product differentiation along the dimens
with the dramatic increase in Brand 3's shareof these last attributes can be achieved and whether
during
the last four periods. the market considers such differentiation to be im-
Besides the four years of family purchase data,For
portant. bi-the data studied, package size and con-
monthly estimates of advertising expenditures were
figuration were not widely used as competitive weapons
made available for the same period. These by
data
thewere
industry. The standard size was well-known,
expenditure estimates in the Chicago metropolitan
medium-sized container of traditional shape. Moreover,
area for the three nationally advertised brands. As a of flavors that exist in the market was
the proliferation
result of the availability of such advertising data, relative
prices and shares were summarized and aggregated Figure 2
for bimonthly periods from the family purchase recordsPRICES FOR THREE NATIONAL BRANDS
COMPARATIVE
in preparation for the subsequent three brand analysis.
(1960 THROUGH 1963)
The data for the three national brands are graphed in
Figures 2, 3, and 4.
The advertising expenditure data represent.017
estimates
of newspaper, magazine, radio, network television,
.'01

2 Panel members are required to keep a detailed diary of their

purchases. For each purchase they record date of purchase, item
purchased, its price, number of units, size of a single unit, store
where purchase was made, and whether the item was bought cn .o,on a \ \.oi
p-.
"deal" or promotion. The diaries are periodically collected and
processed by the Bureau. .012
3 Brands 1, 2, and 4 are nationally advertised brands, but Brand
3 is a regional brand. .011

4Brand l's management noted that the period from the last
half of 1962 through 1963 represents a modern low point in the 0 4 8 12 16 20 24 28
BIMONTHLY PERIOD
brand's performance.

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 292 JOURNAL OF MARKETING RESEARCH, AUGUST 1968

RESULTS OF ANALYSIS ON LINEAR MODELS 1 THROUGH 9

Dummy variables

Model Constant Price Advertising Brand 2 Brand I R2 a Error

ao a, a2 variance

a3 a4

1. No transformation on data - .600c 62.9c .00654 - - .656 .0087

2. Differences from mean .372c 64.5c .00956c - - .733 .0068
3. Ratio to mean --.567C .843C .0926c - - .740 .0066
4. Log of ratio with mean -1.40c 2.31c .499 .749 .0066b
5. Dummies, no transformation .702c -37.8c .00144 .020 .433e .900 .0026
6. Dummies, differences from mean .121c -61.8c .00178 .0157 .509c .925 .0019
7. Dummies, ratio to mean 1.01C -.895C .0154 .00878 .501c .922 .0020
8. Dummies, ratio to mean, logs -1.86C -2.56C .0723 .0524 1.44C .935b .0016b
9. Dummy variables only .218c .027 .318c .850 .0038

a R2 adjusted for degrees of freedom; all are significantly

b Based on antilogs of estimates from the model.
c Significantly different from zero at the .95 confidence

from the regression

not present from 1960 through 1963.5accounted
As for
a approximate
result,
data are clean of these hard-to-measure influences. percent of the total variance in the market share m
However, product quality has always been a strong
ments for the three national brands. Both the p
competitive issue among the major manufacturers and
coefficient and coefficient for advertising expend
advertisers. It influences the major theme of almost were
all significantly different from zero at the .95
advertising messages and is the dominant image projec- of confidence. The regression coefficient on
tion of national brands. Also, distribution systems and
however, was estimated to be positive and was si
retail availability are certain to vary among brands and different from zero at the .95 confidence lev
cantly
exert a differential influence on sales. The same pattern of coefficients appearing in
Unfortunately, data necessary to support a compre- first regression model appeared, without substa
hensive study of all these variables are not available change, in the other three simple models tried.
although the subsequent analysis provides some in- second model accounted for 73 percent of the va
sights into their interrelationships and relative strengths. in the dependent variable and used the differences f
the period averages of both price and advertisin
ECONOMETRIC MODELS OF MARKET independent variables. The third model transfor
SHARE the independent variables by dividing them b
appropriate mean value for the period. The re
To explain the market share movement forinfluence
the three
of the ratio variables on market share did not
national brands, several familiar econometric formula-
change significantly from that of the two previous
tions of the demand relationship were fitted to the data.
models. The value of R2 moved only slightly, from .73
(See the table.) to .74. A logarithmic transformation (Base e) made on
In the subsequent analysis the three national brands (including the dependent variable) of the
the variables
are treated as a three-brand market. Four simple linear
ratio model produced approximately the same result
forms with market share as the dependentasvariable
the ratio model, itself. A comparable R2 and F
were fitted to provide an emprical basis with which the
value was calculated for the logarithm model by re-
results from the more complicated forms could
gressing be shares for the sample period on esti-
market
compared.6 In the first model, volume-weighted average
mates of these values produced by the model.8
price and advertising expenditures for bimonthly
associated with each bimonthly subset of observations are related
periods were used as independent variables without
by an identity. Consequently, ordinary least-squares estimates are
transformation.7 The explained variationinefficient
resulting although they are consistent and unbiased. For a com-
5Two distinct flavor classes were sold, however, from 1960 plete discussion of the problems of estimating parameters in these
through 1963. The vanilla flavor accounted for about 95 percent and subsequent models, see [3].
of the volume during this period. 8 To arrive at comparable R2 and F values, however, it was first
6 For a detailed examination of the results of these four models, necessary to solve for the antilog of the market share estimates
see [5]. produced by this model, that is:
7 The basic variables in the four models are defined as follows:
SB, I is market share for Brand B at time t SB, t = e exp [Lii (SB, 0)],
PB, t is price (dollars per ounce) for Brand B at time t where
A B, is advertising expenditures (thousands of dollars) for e is the base of the natural logarithms,
Brand B at time t. SB,t is the estimate of market share implied by the logarithm
Because market share was the dependent variable, the residuals model for Brand B.

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 DETERMINANTS OF MARKET SHARE 293

The appearance of the positive Figure 3 price c

all four models was disturbing. The
COMPARATIVE ADVERTISING EXPENDITURES FOR THREE dat
and, as such, present a temporal NATIONAL BRANDS record
points. Under these conditions econom
(1960 THROUGH 1963)
gests that the positive price coefficien
from upward shifts in the demand curve,
by one or a combination
o I
of factors.
movement could easily have been cause
nous increase in total
so- demand, affecting a
equally. If this were
o
true, however, the
change would not be reflected by mode
share as the dependent variable. For th
'20

one would not expect shifts resulting fro z { I

intensity or effectiveness
0 I -, of
, the
I , ,industry'

ing expenditures to have caused the pro

changes in the effectiveness or intensit
expenditures by individual
0 4 8 12 16brands 20 24 28 wou
to be reflected in the advertisingBIMONTHLY PERIOD
coef
through a positive price coefficient.
The models withfor
A more likely explanation dummy this variables added are Mod
positi
is the existence of5 through
other 8: variables, not
having a positive association
Model 5 with both
and price and manifesting their influe
through the price variable. Several
S, t = ao + alPB.t + a2AB,t vari
+ a3Q1 + a4Q2,
through Brand 1 could be responsibl
where
coefficient's positive sign, such as p
differences, superior Q, is 1 when B is 2 and 0 otherwise
in-store promoti
Q2 is 1 when B is 1 and 0 otherwise,
preferential shelf-space allocations within
and advertising
lative effects of past the other variables remain as efforts,
previously defined o
(see Footnote
use of advertising expenditures.
6).
Model 6
ANALYSIS WITH DUMMY VARIABLES

Because proper data for these missing variables

SB,t = ao were
+ al(PB,t - Pt)
not available for the three brands, dummy variables
+ a2(A,t - At) + a3Q1 + a4Q2,
were added to the models as their proxies. Because
the proxy variables' regression coefficients where
are intercepts
rather than slopes, they are correctly associated withprice (weighted by volume) for all
P. is average
slowly changing, long-run inputs to the demand threefunc-
brands for period t,
tion. Of the missing variables, product quality, retail
At is E AB,t/3,
distribution, and advertising capital (cumulative effects)
B

are most often considered as long-run attributes. other variables remain as previously defined.
and the
Although the proxies must represent the combined
Model 7
effect of all missing variables, product quality seems
to be the most important. This view is supported by
SB,t = ao + al(PB,t/Pt)
one brand's management that thinks quality greatly
affects a brand's long-run market performance. The + a2(AB, /At) + a3Q, + a4Q2.
company's advertising copy reflects management's
Model 8
opinion on this point and exploits a quality theme.
Also, limited data would suggest that their efforts with
distribution and in-store promotional activities in the
s,.t = ao{(PB,t/Pt"')
sample market are not greatly superior to those of the
other national brands and are not responsible { for
(AB, ,/At) a2} {l (a3Ql + a4Q2)}
Whenprice.
Brand l's superior market share and higher a log transformation (Base e) is made on
Model 8 it becomes:
The notation "exp" means raised to the power.
As mentioned, the values used in the estimation procedure were
generated by sampling methods and may contain errors. Hence, log (SB,t) = log (ao) + a, log (P,,I/Pt)
the estimation procedures are influenced by the well-known prob-
lems associated with errors in the variables, see [1, Chapter 6]. + a2 log (AB, t/At) + a3Q1 + a4Q2.

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 294 JOURNAL OF MARKETING RESEARCH, AUGUST 1968

Figure 4 Q2 is 1 when B is 1 and 0 otherwise,

RELATIVE MARKET SHARE FOR THREE NATIONAL BRANDS SB,t is Brand B's share in period t.
This model postulates that the best prediction of a
(1960 THROUGH 1963)
brand's market share is provided by the average value
of its share.1' The results of the regression fitting this
.90 model to the data are included in the table. The regres-
S .80
r
sion produced an R2 of .850 that is significantly different
from zero at the .95 confidence level.
The computed values of the appropriate F statistic
measuring the significance of the contribution of price
and advertising to the explanation of variance in the
.10
dependent variable measured against Model 9 are:
.20 '
Model Computed F D.F.
9. Dummy variables only 194.8 2, 69
0 4 8 2 16 20 24 28 5. No transformations 15.7 2,67
BIMONTHLY PERIOD 6. Differences from mean 33.6 2,67
7. Ratio to mean 30.5 2,67
8. Log of ratio to meanl" 4.25 2,67
In this form, regression estimates for ao, a1, a2,
a3 and a4 can be obtained. The addition of price and advertising has expla
Because of zero advertising expenditures for some
a significant amount of the remaining variance
brands, a translation of the expenditure data byModel
one 9. As indicated in the table, however, the
unit was tribution of advertising in Models 5, 6, and 7 is
necessary before Model 8 could be fitted.
significant at the .95 level of confidence.
Therefore, direct interpretation of the regression coeffi-
cients as elasticities is not directly possible.
COEFFICIENTS OF DUMMY VARIABLES
REGRESSION RESULTS AS INTERCEPTS

The addition of dummy variables as proxies for

The method of adding dummy variables to the mo
quality and distribution measures considerably
forced im-the effect of Brand 3's proxy variable int
proved the explanatory power of the models.
common The intercept and caused a3 to represen
dummy variables also cleared the confusion among
difference between Brand 2's influence and Brand l's
quality, price, and the dependent variable, market
influence on product quality (and other variables);
share. In all cases, the linear relationships are signifi- this difference between Brand 2 and Brand
a4 represents
cantly different from zero at the .95 level of confidence.
3. Following the analysis suggested by Suits [4], the
Models 6, 7, and 8, however, produced the best
dummy fits
variables' coefficients may be interpreted, in
with determination coefficients of .925, .922each
andof.935,9
the models, as differences in intercepts caused
respectively. Model 5 (no transformations onbyprice and variables they represent. For three of the
the absent
advertising, but with dummy variables) yielded ancontaining
models R2 dummy variables (5, 6, and 7) the
of .900.
resulting intercepts for the different brands are:
The dummy variables' marginal contribution to
Brand
the explanation of variance in the dependent variable
is significantly different from zero at a confidence level 1 2 3
far past .95 in all cases.
5. No transformations 1.135 .704 .702
Another and perhaps stronger test of the significance
6. Difference from period mean .630 .137 .121
of the influence of price and advertising on7.relative
Ratio with period mean 1.602 1.02 1.02
share can be made by reversing the previous analysis,
The coefficients for the dummy variables are differe
postulating the following naive model, and observing
how much its explanatory power can be improved byfor regression lines with otherwise ident
intercepts
adding price and advertising variables: slopes. The fact that as is not significant (see the ta
Model 9 10 In contrast, the implied null hypothesis for testing this influe
in the previous analysis was "the best prediction of a bra
SB,t = ao + a3Q1 + a4Q2, market share is the average share for all of the brands."
11 Model 9 does not provide the proper explained sum of squa
where for the contribution of the dummy variables alone for the logari
Q, is 1 when B is 2 and 0 otherwise, model 8. To get the appropriate sum of squares for this model,
following regression was run, and the antilogs of its estimates
used:
9 Antilogs were taken, and the coefficient of determination was
calculated by regressing the estimate against the actual values of
market share. Log (SB, ) = ao + aiQi + a2Q2.

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 DETERMINANTS OF MARKET SHARE 295

means that the difference

class. Second, thein quality
article (per
deals necessarily with
actual as reflected by tive
the market) between
models of the demand relationship and Brth
Brand 2 is not significantly different
acknowledges this fundamental market from
characteri
relationship remainsThe essentially stable
superior fit of Model insu
8 to the data
models (5, 6, and Kuehn's
7); the [2] contentionthat
hypothesis that price
the andtwo
adve
are similar is supported.
interact and does not produce linear effects on
The behavior of Brand market I share
in or thisvolume. respect
Kuehn's argumentis di th
The computed t value for Brand
advertising expendituresl's dummy
will support higher p
coefficient (a4) is highly significant
appealing since economistsin haveall
long three
felt that a
This means a significant ing expenditures
quality causedifference
the demand curve t
tween Brand 1 and Brand upward. The 3 as measured
multiplicative structure by th
of Model
ence in their respectivethis joint intercepts.'2 Moreov
influence of price and advertising on
relationship is consistent
be examined. for the three mod
also entirely reasonable Twoto infer
implications from
of the this man-
research to marketing fact
cant difference between agers are: the quality index fo
and Brand 2 in the same direction as for Brand I and 1. When cost structures are added to the analysis
Brand 3. The validity of this inference is supported and their parameters estimated, the models be-
by the stability of the computed t statistic for a3 and a4 come normative models of firm behavior and
over all three models.13 descriptive models of market share behavior. As
The table indicates that adding dummy variables to such they may be examined for short-run optimal
the analysis requires a different interpretation of the price and advertising decisions.
influence of advertising on market share. Although its 2. The models may be used as forecasting mecha-
influence was less than that of price in the first four nisms to examine the probable effect of current
models, it was significantly different from zero at the merchandising policies on market share position
.95 level of confidence. However, with addition of the and company profits.
dummy variables, the coefficient of advertising is not Unfortunately the models' forecasting ability is still
significantly different from zero at this confidence level.
unknown. Advertising expenditure data for 1964 and
later has not yet been released by the cooperating firm's
DISCUSSION AND CONCLUSIONS management, and I can only imperfectly assume relative
predictive accuracy from the models' determination
In some respects this article is another of several
coefficients.
demand studies designed to investigate the underlying
structural relationships and price responsiveness of a
REFERENCES
product market. In important dimensions, however,
it is different from almost all demand studies1. previously
J. Johnston, Econometric Methods, New York: McGraw
reported. First, it is concerned entirely with the
Bookdemand
Company, Inc., 1960.
for individual brands for a single consumer 2. Alfred A. Kuehn and Doyle L. Weiss, "How Adverti
product
Performance Depends on Other Marketing Factors," Jou
12 Note that the t statistic is not being used to test for significant
of Advertising Research, 2 (March 1962), 2-10.
difference between the regression coefficients of the proxy variables W. McGuire, et al., "Estimation and Inferenc
3. Timothy
but to determine whether the implied intercept of Brand 3 Linear
is differ-
Models in Which Subsets of the Dependent Vari
ent from that of Brands 1 and 2.
are Constrained," Carnegie-Mellon University, Working
13 To further test this proposition, it would be necessary to per No. 3, Pittsburgh, Pennsylvania.
compare the regression sum of squares for the following two 4. Daniel B. Suits, "Interpreting Regressions Containing Du
models:
Variables," Speech to Research Seminar in Quantitative E
nomics, University of Michigan, May 1962.
(1) SB, t = ao + aiPB' + a2AB + a3,4 Q1,2; 5. Doyle L. Weiss, "An Analysis of Market Share Behavior
Q1,2 = 1, if B = 1 or 2 and zero otherwise, and Branded Consumer Product," Unpublished Ph.D. disserta
Graduate School of Industrial Administration, Carnegie I
(2) SB, t = ao + alPB' + a2AB' + a3Q1 + a4Q2. tute of Technology, June 1966.

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