Category–level drivers of the market share–rank power law relationship

Abstract

PurposeThis paper aims to analyze variations in the parameters of the market share–rank power law across consumer packaged goods (CPG) categories.Design/methodology/approachThe authors use a two-level hierarchical linear model to examine the relationships between category-level variables and the parameters of the market share–rank power law in 790 CPG categories.FindingsThe slope of the market share–rank power law is shallower – indicating more equal market shares – in categories of high importance to retailers and those with high levels of promotional activity or high-volume purchases. Higher levels of market share inequality are associated with categories with high overall prices.Research limitations/implicationsTo the best of the authors’ knowledge, this is the first research to show the systematic influence of category characteristics on the relationship between brands’ market shares and their ranks, thus, identifying a key moderator for this important empirical generalization in marketing.Practical implicationsWhile market leadership may be a desirable goal for many brands, the corresponding market share at the top brand does vary. Moreover, the share premium for being number one in the category (gap between the top and other highly ranked brands) can be greatly affected by retailers’ strategies. In addition, the slope of the power law has desirable qualities as a measure of market concentration. However, the empirical study shows that category characteristics must be considered when analyzing differences in concentration across categories or time.Originality/valueWhile other studies document variations in the market share–rank power law relationship, to the best of the authors’ knowledge, this is the first that models these variations as a function of observable category characteristics. The comprehensive nature of the data demonstrates the universality of the market share–rank power law relationship across CPG categories in the USA.