Is market share a meaningful measure of design’s financial performance? You’d think so, judging by the number of design consultancies that use increases in sales and market share to trumpet the “success” of their redesigns. The Industrial Designers Society of America even uses market share and sales as two important metrics for its prestigious Design & Business Catalyst award, which recognizes “market and financial performance” so as to demonstrate to executives “the value of design.”
But while market share might be meaningful to designers, it has far less resonance with CFOs, the ultimate arbiters of design investments. Julie Hertenstein and Marjorie Platt, two Northeastern University accounting professors who’ve attempted to quantify the contribution that design makes to the bottom line, argue that market share, by itself, doesn’t really mean much. “Market share is just that, a share˜it’s measured as a percentage,” says Hertenstein. “If you can’t measure it in dollars, it doesn’t show up on the accounting statement.”
Hertenstein and Platt have two problems with using market share as a surrogate for measuring ROD. First, improved market share does not necessarily lead to improved profits. A company can increase its market share by cutting the product’s price, but that also leads to lower per-unit margins. The same holds true for (so-called) improved sales. “You’re not better off if costs go up at the same rate that sales go up,” says Platt.
But the bigger problem is that market share doesn’t tell the whole story, because often it leaves out all the investments that go into making and distributing the redesigned product. Companies rarely capture both the cost of a redesign and all the subsequent costs that are incurred downstream. Without that data, market share is a less-than-helpful signpost to design’s ROI.
If design consultancies truly want to proclaim design’s real financial performance, they might be better served by citing real financial measures˜which, as our No Accounting for Design? article points out, is far easier said than done.