Why Market Share
Market share is easily the most underrated parameter in our industry. CEOs in healthcare are conversant with figures and numbers related to revenues and costs. But they usually have a puzzled 'what did you just say' look on their face when I ask them about their market share?
What does your market share tell you? When you set out to calculate your market share, this is the first question you encounter – Is this included in my market? For example, is alternative medicine market to be considered if I calculate the market share for my hospital?
In simpler terms, market share defines your market for you. Which services, geographies and categories of consumers are part of your market. Surprising as it may seem, but I can almost place a bet that most healthcare CEOs cannot accurately define their market!
Anyway, once the arduous task of determining what your market is over [how to do it, is a topic for another discussion, given the expanse of the concept], you move on to the next step.
In this phase, market share tells you about the future strategy. If you are a market leader, you know you can call the shots on pricing, insurance bargains, salaries to be paid, etc. If you are a market leader by a long enough margin, you can instigate something we call – 'a shakeout' in market strategy. This is where you disrupt the market in a way that wipes out the smaller players and leaves that extra bit of the market for you to chew upon.
If you are a second or third in the market hierarchy, you look at dislodging the leader by finding chinks in their armor. If they are weak in oncology, you become stronger in that, for example.
The followers in the market will perish sooner or later, unless they indulge in rapid innovation and come out with new rules of the game. For instance, an unnamed follower in India is looking at charging only for surgery and making all the rooms and bed charges free for insurance companies. If they succeed in doing this in their 7-8 hospitals, they may get a handsome market share by way of insurance companies supporting them.
The small players, who have insignificant market share, play for obtaining small niche segments.
This is just the proverbial tip of an iceberg about what accurate knowledge about your market share does to you. To add a bit of spice, let me dig deeper – market share for each of your major services or market share in each of your geographies will result in different strategies for different services and areas.
Now having added the spice, let's add a bit of garnish too. Let us look at another dimension called industry growth rate. Now this makes things very interesting for you. If the industry is growing and your market share grows more than the industry, you are doing well to ward off possible new entrants. If your market share does not beat the industry growth rate, you have some soul searching to do. You can go to the lengths of finding out how various specialties or markets have grown and how has your market share trended in these markets.
Though I can go on and on, I would just add one last angle to what market share does to you. It brings your costs down! More volume means less per unit cost [no rocket science]. The marginal cost of doing that 7th surgery in the OT in a day is definitely lower than your average cost per surgery. This has huge implications on the EBITDA.
Why do you miss out on this all important figure?
Having read the rationale above, if you have started beating yourself for not being in charge of your market share, let me provide you some solace. You and most of your contemporaries are most likely to miss out on market share. To start with, adequate information on competitor revenues and patient footfalls is not available in our market. At best, you can have a guesstimate about these numbers and that too will need some basic reliable information. Moreover, the industry growth figures are distorted too. To top it all, your Board is not looking at the market share metric closely enough, as for them what matters is share price, revenue, EBITDA and net profit. This in turn gets you to undermine market share as key component of growth and strategy.
Hope you will find this letter useful and it will make a difference to your thought process and business acumen.