Gregg Easterbrook, American writer and a senior editor of The New Republic, said, "Torture numbers, and they'll confess to anything." One brand protection expert analyzes what market share statistics reveal about a brand – and what they often don't.

"Market share" is often defined as the percentage or proportion of the total available market or market segment that is "owned" by a product or service brand. Thus, to many FMCG (Fast-Moving Consumer Goods) manufacturers and Customs agencies around the globe, the term has assumed enormous significance, almost a magical allusion. Unfortunately, in many cases, market share is no more than a mere estimation of the market segment.

This article challenges the traditional method of defining and measuring market share, to the exclusion of other crucial indicators, resulting in FMCG manufacturers and even governmental authorities often basing important strategic decisions on fairly inaccurate data.

Market share generally refers to the ratio of a specific brand's sales to the total sales of that product-type in a defined area (region, country, etc). Market share can also be defined as the ratio of the sales of a company's entire product line to the total sales of all related products.

Why question the validity of this market share formula? It is not about the significance given to the market share, but rather the method by which it is measured. In most cases, market share is calculated by comparing individual company figures to the total domestic market. More often than not, the total "perceived" domestic market is measured by adding manufacturing shipments to imports and subtracting total exports (see table below).

Perception vs. reality. Significant caution should be taken when calculating the size of the total perceived domestic market. While in most cases an industry's total production plus imports minus exports should reflect a country's demand for a particular industry's goods, statistical and methodological anomalies may distort the final figure. Many of these discrepancies are often the result of combining manufacturing production data, which is collected from a survey of production plants, along with trade data collected from customs receipts.

Traditional market share measurement is often biased. That's right. Market share information could be skewed if one does not consider these three illicit trade factors that often affect the numbers:

1.       Genuine Products' Outflow refers to the efflux of domestic goods to undesignated markets. In other words, goods produced or aimed for the "domestic" market find their way to other markets (i.e., other countries) mainly by way of contraband activity. It must be noted that there could also be a legitimate outflow of products, wherein citizens of a country and/or international tourists purchase local products, travel and consume those products outside the country of origin. Although such goods are not necessarily consumed in that particular country, they are registered under "import" and/or "manufacturing shipments".

2.       Genuine Non-Domestic products (GND) refer to products that are smuggled into the country and not recorded as "imports" at all, since such goods do not enter the country via official channels. As with the Genuine Products Outflow, there are also GND products which are not regarded as smuggled goods, having entered the country via tourists and/or returning citizens.

3.       Counterfeit Products, referred to as "Number 2 Products", can be 1) produced and consumed inside a country, 2) produced outside the country and then smuggled into the country, and 3) produced in the country and then smuggled outside of the country. Once again, those products do not appear as part of the traditional market share "equation".

The above anomalies can create great discrepancies in the calculation of a company's market share since they are not generally calculated into the "equation". Critics may say that counterfeit products should not be added to the same "stew", since they are not genuine. But in fairness at the very least, illicit products should be factored into the market share or, at minimum, should be calculated as part of the equation and then subtracted from the genuine products estimation (see table below).

New survey methodologies can result in more realistic numbers – and more accurate market share information. After reviewing various market share calculations, it is apparent that in order to justify the current methods of achieving traditional market share estimates, there must be a fair measurement of the illicit trade segment. This may prove to be a daunting task in most cases, yet it is crucial in order to bring the market share figures into actual or approximate levels. 

Newly developed survey methodologies, such as IP Diagnostic Market Surveys, trace important illicit trade figures and estimations. The core idea behind such surveys suggests that if one follows the consumption, one will receive a clear picture of the internal "market". Although this methodology may not be applicable to all industries, it fairly extracts illicit trade figures and estimations. Based upon these survey findings, industries and government agencies, like Customs, can study approximate illicit trade figures more closely. Moreover, the traditional market share calculation can be adjusted to a more accurate and precise figure.

In conclusion, market share, as calculated today, is not infallible. It is, rather, just an initial estimation, which must be reconsidered in order to evaluate market behavior in a clearer and more accurate manner. Unfortunately, most industries and governments today still base significant strategic decisions on traditional market share estimates, despite the fact that these figures ignore important factors like illicit trade. Decision makers in both sectors would be well advised not to turn a blind eye to the real picture.