Probe42

Running a business with a high market share is profitable, points out various studies. Why is that so?

There could possibly be three explanations for it:

Economies of scale

A company with a 30% market share operates at twice the scale as that of one with 15% market share. So, the former is more likely to bring in operational efficiencies within a type of production technology.

Leadership strength

Also, large size and leadership in the business permits them to bargain effectively or get higher prices for their product than its competitors.

Management quality

Being a market leader also gives them the ability to attract the best of talent that in turn maximizes productivity for the organization.

High market share does give a solid foundation to your business.

What type of market share should you aim for? Especially in these times, when inflation has hit a high and there are concerns regarding global economic slowdown. Should you focus on the value share or rev up the volumes?

What market-share goals are desirable depends on a lot of factors including the competitor’s strength, capital available to support a strategy and the willingness of the management to forego present earnings for future results.

Here are the steps to make the right choice:

Product life cycle stage

India is a promising market for many products – thanks to its favourable demographics. Some product categories have already seen a lot of penetration while others have not. Find out at what stage your product is in. If it is in the nascent stage, you may play the volume game. Once the penetration increases and customers start showing loyalty towards products and brands, you can move up the value curve.

With inflation looming over, customers worldwide are axing their luxury budgets. Ensure your products give the necessary value proposition to customers.

Competitive advantage

Is cost efficiency your biggest strength? Then, it might make sense to reduce prices and focus on volumes. While lower pricing reduces margins, overall cost efficiencies also make up for it by using idle capacities.

Further, if product differentiation, customer intimacy or product innovation is your greatest strength, you might someday want to graduate towards value-additive products that not only boost market share in value but also have the opportunity to improve short-term earnings and cash flows.

One can also adopt a balanced approach by playing value or volume strategies for different segments of the market. Or perhaps play the volume game in each product segment in order to capture overall market share in terms of value.

Assessing competitor position

Any business strategy analyzes a competitor’s position thoroughly. What are their market shares (volume and value), their competitive strength and weaknesses, financial position and so on?

The level of analysis has to be deep and specific. For instance, an industry-wise study might show that as the market share of companies’ increases, the purchase to sales ratio falls. What explains this relationship?

One possibility is that as the company gains higher market share, they are getting vertically integrated, resulting in lower purchases to sales ratio. If that’s the case, then they are possibly ‘making’ more than buying (from outsiders) which should reflect the rise in manufacturing costs.

Perhaps it is possible that despite the vertical integration, manufacturing costs are getting offset by increasing efficiency (economies of scale).

You need to lay threadbare the unit economics concerning your business by leveraging on competitor’s financial and business data. Many cloud-based databases are providing this information at the click of a button.

Similarly, you can analyze industry data on marketing and advertising expenses and R&D to set your internal budgets. Many businesses today have an internal strategy team that scouts for acquisition opportunities based on ongoing financial data and valuations.

Summary

Market-share goals depend on a lot of factors including the competitor’s strength, resources available and the willingness to forego present earnings for future results. Use data to stay ahead of the curve.

About Probe42:

• Probe is an independent Information Services company focused on providing financial information on Unlisted and under-covered companies in India
• Our Customers have found value in using Probe42.in to enable their decisions involving Identifying prospects, sales preparation, credit and competitor analysis, etc.
• The Probe42 platform has been extensively used by Banks and Corporates.

SIGNUP TO PROBE42

Conventional tactics for prospecting good leads might not work for B2B marketers in 2022. This is simply because the pandemic years have altered the way purchasers act and make purchases. A recent study by Mckinsey Research found that 90% of B2B sales have switched to digital channels.

Businesses are increasingly creating leads through a variety of digital channels, including SEO, banner advertisements, websites, and social media.

Background check

Unlike sales made through references or word-of-mouth, sellers often have little information about their digital buyers. While embarking on a new business relationship, a thorough background check of prospective buyers is a must.

Is the buyer a legal business entity with proper licenses to perform work?

Cloud-based databases like Probe42 make it possible to do thorough preliminary checks of prospective buyers in an instant. After selecting the company, click on the tab ‘About the Corporate’ of Probe42 to get all the important company information in a user-friendly format. Also, check for its e-filing status. ‘Active’ status indicates that the company is operational, as per Ministry of Corporate Affairs (MCA) records.

Since these data are updated by Probe42 from the MCA website on a regular basis, you get a whiff of any change in listing status, location or industry of operation from its CIN status (alternatively Probe records). To ensure you get the latest information, Probe42 also provides the exact date and time when the documents were updated from the MCA website.

Furthermore, use the contact details to check the verity of the company details and seek further information.

Probe the Director’s details

Once you analyze the basic company details, conduct a background check of its key people. Go to the ‘Director’ tab and have a glance at the list of directors on the company board. Click on the name of the director to figure out their directorships in other companies. Red flag those having directorships in companies with bad or questionable governance standards.

Probe42 also gives information on the ‘status’ of the companies in which an individual is a director. Some companies shut down due to negligence or bankruptcy and reopen under a new name. Check if directors are on the board of such companies and if their e-filing status is ‘active’ or not.

What’s the shareholding pattern?

Then, click on the tab ‘Structure’ to get details about the shareholding pattern of the company as well as the history of corporate actions (security allotments).

Usually, a high promoter stake indicates that the promoters have a belief that the company has potential for growth in the future. If the stakes are rising, again it’s construed as a sign of confidence in the business.

A more diversified set of investors – including foreign funds, mutual funds, insurance as well as retail investors underscores its popularity among the shareholding community. This applies more to listed companies. The good presence of institutional investors also indicates that the promoter has little room to take random decisions, while the presence of domestic funds is also considered a good sign since these institutes seek more clarity and transparency in the company operations.

Additionally, research the information provided about the subsidiary and associate companies to get a bigger picture of the group operations and ensure there are no governance-related issues.

Security allotments in turn can reveal a lot about the fundraising activities – be it by way of equity or debt. Those seeking company equity shares as compensation for their product or services should deeply look at valuations at which equity shares were allotted to investors/promoters in the recent past. In the past, a leading media company had barter deals typically with mid-sized companies, whereby shares (instead of cash) of advertising companies were sought as compensation for advertising in their media.

Check credit worthiness

It’s possible that a company might operate in an interest-rate-sensitive sector but still have financial prowess. A glance into its financials will give you a glimpse of its indebtedness and liquidity situations. For instance, a cash-rich company or those with zero debt on its books are on a better footing than those struggling with rising financial costs and increasing debt-to-equity ratio.

Click on the tab ‘Financial Data’ to get historical details of the company’s financials. Read the blog ‘How to analyze the financial performance of a company in a flash’ to know the process of doing a financial analysis of a company.

Moreover, while analyzing the financial status, analyze the business and financial risk profiles of the company and its subsidiaries as well. This is because of a high degree of operational and management integration, common promoters, and shared brand equity. One way to keep yourself updated is by actively tracking its ratings and update. This could be found by clicking the tab ‘Compliance’ and selecting ‘credit ratings’ from its contents.

Is the company under question better than its peers? Moreover, does it matter to you?

It does. Take,  for instance, the payables to sales (days) of a company is 57 days as compared to 27 days for the industry. It means that the company takes more than the usual time to repay its suppliers. If such companies are also exhibiting weak financials, you might perhaps consider reducing the credit period for them. It is likely that the company is not having enough cash or revenues to meet its short-term obligations. This information can also help you internally rate customers and devise suitable credit policies.

Compliance check

Have there been any pending lawsuits or criminal convictions?

Click on the tab ‘Compliance Check’ to get information on cases filed against the company as well as filed by them. It also provides details about the category of the case (insolvency, legal, etc) in addition to the court and the last date of hearing. If a large financial obligation is likely, take note of it.

Additionally, check if the company has a BIFR or CDR history. Browse through their GSTINs (active and inactive) as well as the latest GST filings to get a glimpse of their tax compliance.

Not the least glance through the auditor’s comments. Unaudited financial results might be misleading and perhaps fraudulent. That’s where the role of the auditor comes into play with his primary goal being to express his opinion on whether the financial statements of a company are reasonably accurate and provide adequate disclosure of transactions.

Specifically look for adverse auditor’s opinion, if any that indicates that a company’s financial statement is misstated and does not accurately reflect its financial performance and health. Sometimes, the auditor could make an adverse opinion highlighting issues such as poor internal financial control measures of the company.

Takeaway

Cloud-based databases like Probe42 make it possible to do thorough preliminary checks of prospective buyers in an instant and that too remotely. Use it to take better credit decisions and boost sales.

About Probe42:

• Probe is an independent Information Services company focused on providing financial information on Unlisted and under-covered companies in India
• Our Customers have found value in using Probe42.in to enable their decisions involving Identifying prospects, sales preparation, credit and competitor analysis, etc.
• The Probe42 platform has been extensively used by Banks and Corporates.

SIGNUP TO PROBE42