Share of Requirements - Definition, Importance & Example
What is Share of Requirements?
Share of requirements is a metric that is used in marketing to know the brand loyalty that customers have towards a particular product. Share of requirements is a marketing metric that is used to find the share of wallet of an average customer that a brand enjoys when customers purchase of the brand the product belongs to. Share of requirements is the ratio between brand purchases and total category purchases by brand buyers both expressed in numbers (#).
Importance of Share of Requirements
Share of Requirements is useful in analysing the overall market share of a brand. It is part of the whole equation to calculate market share. The equation goes as
Market Share = Penetration Share + Share of requirements + Heavy usage index
Marketers can easily target some niche segments using the metrics stated ahead. Share of units alone doesn’t make much sense unless used in tandem with penetration share and heavy usage index. Marketers see share of requirements as an indicator of customer loyalty. It guides the decisions regarding resource allocation, poaching customers from others.
If the share of requirements is high, it means that the loyalty towards that brand is also high. If revenue share of requirements is not considered, it could lead to misinterpretations in the market. If a person buys a product of brand A monthly, the company might think that he is a loyal customer, and may even try to profile the customer to find other such customers, thinking that the product suits them. However, if the person buying one product of brand A is also buying 3 products of brand b, the brand loyalty is actually not that high. The revenue share of requirements is a metric that can be used effectively by companies to avoid such errors, since it also takes into account other brand purchases of the customer, as well.
The revenue share of requirements for a brand is calculated as the ratio between the revenue from the purchase of the brand and the total revenue from the total purchases in the category, including other brands.
Formula for Share of Requirements
Unit share of Requirements (%) = (Brand Purchases (#))/(Total category purchases by brand buyers (#))
Examples of Share of Requirements
1. 750,000 bottles of Parachute coconut oil were sold by Marico in the month of March. In the same month, total number of consumer buying from Marico are 5,000,000.
Unit share of requirements = 750,000/5,000,000 = 15%
2. For example, if a customer spends $50 on one brand, and then goes ahead and spends $100 on other brands, the revenue share of requirements may be calculated as 50 / (50 + 100) = 33.33%.
Hence, this concludes the definition of Share of Requirements along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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