Market Share Definition, Formula, Examples And Applications

Market share can be understood as the portion of the total sales of a company within the entire market where it is operational. In much simpler terms, it can be defined as the percentage that a company has in the total sales of its industry or market.

Analyzing market share is essential for finding out the competitiveness, presence, and growth of a company. In this article, we will understand what market share is and what are its different implications. So, let us start digging into the world of Market Share-

What is Market Share?

Market share is the percentage of sales of an industry that the company has earned when compared to the total sales of the market or industry. It is calculated by logging the company’s sales over a certain period of time and dividing that by the total sales of the industry.

Market share refers to the percentage of overall total sales that a company generates.  This criterion is used to generalize the idea of the relation of the company to its market and competitors.

When a company compares the market share, it influences the percentage of help by the competitors.

Kenneth J. Cook, in his book The AMA Complete Guide to Strategic Planning for Small Business, wrote-

“The important factor in computing relative market share is not an exact number associated with the sales volume. Your position relative to the competition is more important.” These words hit hard to make us realize what should be the strategies to carry market share efficiently.

In simpler words, the market share is defined as the amount given out of the total purchase. The entire purchase by a customer of a service or product and the percentage that goes to a company is defined as market share.

So, if a customer purchase 100 products, and in that 40 products are from one company, then that company holds a 40% market share.

Market Share Formula

To understand the concept of market share better, you need to have a look at the formula-

Market Share = (Particular Company’s Sales Revenue in time X) / (Relevant Market’s Total Sales Revenue in time X)

So, by having a look at this formula, you can quickly gauge what market share is and how it can be calculated.

Let us now make it more evident with an example-

Example

Just assume that a company ABC sells $30 million a year in USB devices, &

The total amount of USB devices sold from all the company within the market $100 million-

Then market share of ABC Company will be= ($30 million) / ($100 million) = 30%

Description of different Concepts of Market Share

There are several kinds of market share. It can be in either volume or value.

Volume market share is about the actual numbers of components that a company sells out of total units sold in the market.

Meanwhile, value market share refers to the overall percentage of a business out of its total segment sales. And, the equation of value-volume isn’t always linear.

It can have low numbers, and high value, which means the volume share may be small and the market share value may be high.

For the calculation of market share, a business owner initially should be determining the total sales of the product- The total sales in a specific period, most probably of a year.

Further, that owner is to calculate the total no. of transactions accomplished by his firm in that particular period.

Not merely for finding out the market sales, but it can also help to realize the sales level attained by their largest competitors. Then, this information can be used for further relative market sharing.

Industry association can provide all the information about the overall size of markets.

And that can undoubtedly track both the growth and sales rates. Plus, the calculation is very much essential to get a significant idea of the value and volumes of total sales.

Also, the losses and gains in market share can always have an impact on a business’s performance, stock, and it depends on the industry’s conditions.

It represents the market’s total sales or the percentage that is received by that company at a particular time. And its market share is the fraction of entire sales in association to the industry or their operating market.

The period is essential to calculate this at a specific time.

Impact of Market Share

The performance of any company is related to the changes in the market.

And it can influence if the cyclical industries if there is low growth in the rate.

Meanwhile, changes in the share have less impact as there is high growth. The stock accomplishment is severely affected by the growth of sales and other related factors.

Applications

Analysis of the market share can be a valuable impetus that forces small business holders to pay attention to the entire rate of the market. Also, it enables in paying heed to the actions and total sales of their competitors.

Let’s assume, a company may be persuaded to give a low price to attain its target, then it might have a larger sales volume, but it’s not always that it will lead to higher profits.

Another application can be considered as evaluating the company’s competitor.

It can be useful to formulate an efficient strategy. The information on a company’s market share indicates a competitive position. It can be combined with information on the growth rate. And hence, it can be effectively used for determining the best future positioning of the firm.

The industry’s attractiveness and growth rate are strong; then it will eventually benefit the company. The company can occupy a fortunate position and will be known as the star in its market.

To exploit their competitive advantage and to protect themselves from other competing companies, star companies make data and analysis based strategies related to the Market Share.

The potential of market growth is accurately described with the proper analysis and calculation of the market share.

Here is a video by Marketing91 Market Share

Why you Need to be cautious about Market Share Public Data

As we know that using just a market share to estimate the performance is a risk. And it shouldn’t be considered as the lone criterion to measure such a thing. Now let’s discuss why we should be cautious while considering market share data while making judgments-

1) Inaccuracies in Data And Its Effect On your Strategy

The management of market sharing data can sometimes cause different results.

Not just different, but inaccurate as well. There is always a chance of the error that can be made by comparison also.

While measuring the competition market sharing, it’s not always possible that you will receive their accurate results.

This can lead to blunder in your data and fail to provide the true reflection of the current competitive state.

2) Uses historical data to plan out your strategy and roi

Market share data is frequently assessed well before it is going to be published.

That time can be stretched to 12 months.

That means the information which is being measured isn’t accurate and correlated to the new share.

Therefore, it gets challenging to understand the factors which have caused a recent increase/decrease in the market share.

So, for increasing your market share, you need to be very immaculate with your decisions. Let us now have a look upon some of the tips that can help you in increasing your market share-

How to Increase Your Market Share

For increasing your market share, you can opt for different kinds of strategies and maneuvers. Let us have a look upon some of those here-

1) Innovation plays a crucial role in increasing market share

With the help of innovation, you will be able to introduce new technology in the market that your competitors are not having.

This will enable you to pull in the customers of your competitors as well, and hence you will be able to increase your market share effectively.

2) Developing productive customer relationship plays a crucial role in market share

When you strengthen your relationship with your customers, you make a loyal customer base. Hence your customers will never go to your competitors.

Also, satisfied and loyal customers will widen the reach of your brand by spreading positive news about this in the market. Their word of mouth marketing will also play a key role in increasing your market share.

3) Incorporating best employees is also quite crucial for increasing market share

When you have the best workforce in your industry, it will be quite useful for you in expanding the market share.

With the best in class employees, you will not need to spend money on turnover and training. By saving the money, businesses can increase the budget of their resources on some of the other key competencies that will empower them to improve their market share.

4) Acquiring your competitor can enable you to increase the market share

Businesses that receive their competitors efficiently increase their market share by earning the existing customers of those competitors.

Also, acquiring competitors helps a business in reducing the other players in the market that are sharing the profits. Hence, opting for profitable acquisition deals is very significant in today’s time for increasing the market share.

Final Thoughts about Market Share!

On the concluding note, it can be said that market share is not merely a calculation; it also helps to grow the relations between companies and their customers.

Companies protect their market share by considering their competitors and making better growth than them. This can lead to no loss of customers in their company.

Companies with their market share high have dedicated and highly skilled employees. Employees who work for the welfare of their company will always work for the high turnover of the company.

So, all in all, opting for the right strategies will, for sure help you in increasing the market share of your company.

What are your thoughts about the tips mentioned above for increasing market share?

Do you have any other tips that can help in optimizing the market share of any company working in a particular industry? Share with us in the comments below applications of Market Share

Thank you for reading our article about market shares intelligence.