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Why do market growth and market share changes use different multipliers?
I am confused by a two-year calculation. The men's market is $100m and grows 25% a year, while the company starts with 10% share and its share falls by 5% of its previous level each year. The teenage market is $50m, grows 10% a year and has a constant company share of 25%. Why do we use 0.95 squared for one share calculation and 1 for the other, rather than the market-growth multipliers?
Ian’s Answer
Men's Market
So, for Men's market we multiply the market size ($100m) times its growth in 2 years (1.25^2). This is correct as the market grows 25% per year.
We then multiply it by.1 *.95^2 because "Market shares have been declining or stagnating in the last two years". Men's market share has been falling by 5% each year.
Teenagers Market.
The teenager market is $50M and it's growing by 10% each year. Therefore we do $50M * 1.1^2.
The teenager market share is 25% and not declining. Therefore we mutiply the above result with 25%, or 25% X 1 (no change).