What is market share?
A market share is a percentage or portion of the market earned by a company. In a nutshell, a company’s market share is the ratio of its total sales to the total sales of the industry in which it operates.
Market share gives a perspective on a company’s product or service competitiveness in its industry.
What does market share mean? Suppose that the whole purchase activity of consumers is 1 million cans of soda drink, and a specific manufacturer sells 700,000 cans. It suggests that the company controls 70% of the market.
The market share definition suggests it is an indicator of a company’s size compared to its market and competitors. An entity with the biggest market share in an industry is the market leader.
How to calculate the market share?
Market share is calculated by comparing a company’s total sales over a specific time period to the total sales of its industry over that same time period.
The period to examine can be a fiscal year, a calendar year or several years.
Market share explained
Assessing growth and decline of a company’s market share gives investors and analysts necessary information about its product or service competitiveness in the industry.
A company that can maintain its market share as the overall market for a product or service grows can increase its revenues. Increased market share enables a company to acquire greater scale in its operations and improve profitability.
Growth in market share helps the company increase its sales and consumer base. When consumers see a majority of their peers are loyal to a certain brand of product or service, they may be inclined to buy the product or use the service themselves.
Another impact of increased market share is that a company that has become the market leader has more negotiation power. It has an advantage in negotiating its dominance with suppliers and members of the distribution channel.
How can a company grow its market share?
A company can grow its market share by offering innovative products, lowering prices, boosting customers loyalty, improving quality, and putting efforts into advertising and acquisitions.
Innovation: Companies can expand their market share by offering innovative products or services, launching new technologies that their competitors do not offer. Innovation can provide a competitive advantage to a company against its rivals.
Discount: Lower prices could attract more customers and widen the customer base, leading to increased sales and eventually the market share.
Maintaining customer loyalty: Companies safeguard their existing market share and ensure that their customer base is not lost due to competition by improving their ties with customers. Improved consumer satisfaction leads to a growth in customer base through word-of-mouth marketing – the process of encouraging organic discussion about the brand among customers.
Advertising: While advertising could be expensive, it is an effective way to increase market share. In a highly competitive market, advertising can give a company an edge over its competitors.
Improved quality: Customers are getting increasingly conscious of the quality of a product in addition to its price. By ensuring higher quality standards, a company can increase its market share.
Skilled employees: Hiring qualified and committed personnel can help a company save money on turnover and training. Companies can entice employees to stay by offering competitive compensation and benefits.
Acquisition: A company can gain access to a new consumer base, lessen competition, and increase market share by acquiring a competitor.