What is market share?
Market share is the percentage of total sales in an industry that is generated by a particular company. It represents the portion of the market that is controlled by that company.
Understanding a company’s market share is useful because it indicates the size of a company in relation to its competitors. The company with the largest market share is referred to as the market leader.
How to calculate market share
Market share is calculated by dividing the total number of sales from a company by the total number of sales in the industry over the same time period. Here’s a quick breakdown of the market share formula:
Total sales by a company / Total sales in an industry * 100 = Company’s % market share
To calculate market share, follow these steps:
Choose the time period you’d like to analyze. This can be a fiscal quarter, one year or several years.
Determine the company’s total sales over that time period.
Find out the industry’s total sales over that time period. (Here, you’ll want to focus on a specific country, such as the US or India.)
Divide the company’s total sales by the industry’s total sales. The resulting number will be the percentage of that company’s market share within the specified country.
For example, let’s say a particular company sold $200 million worth of cars in the US last year. You can calculate that company’s market share by determining the total amount of car sales in the US over the same time period. If the total amount of car sales was $400 million, then that company’s US market share last year was $200 million divided by $400 million, or 50%.
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Why is market share important?
There are a few reasons companies can benefit from tracking their market share. Any increases or decreases in market share point to how successful a company’s products are in relation to its competitors. A company that is growing its revenue at the same rate as the total market maintains a consistent market share. On the other hand, one that grows its revenue faster than the total market increases its market share, thereby gaining an edge over the competition.
Analysts closely monitor market share in order to help a company make smart business decisions. If a company has a relatively low market share, it may need to adopt new strategies in order to increase its sales. These can include lowering its prices, introducing new products, or improving its marketing efforts. On the flip side, a company that has a relatively high market share may choose to scale its operations.
Market share is also an important metric for investors. Gains or losses in market shares indicate how well a company is performing in the industry, and can significantly impact its stock performance.
How can companies increase market share?
There are several strategies companies can use to increase their market share. These include:
Improving marketing campaigns: If a company isn’t making enough sales, they may need to rethink their marketing strategies. This can include strengthening their content, expanding their advertising efforts, targeting different demographics, or reframing their messaging and branding.
Hiring talented employees: Attracting highly skilled employees is another way to increase market share. Dedicated, experienced employees can come up with new ideas to help the company grow its revenue. Companies should also aim to reduce employee turnover, which helps reduce expenses related to hiring and training. They can do this by offering employees high salaries, benefits, and perks such as flexible work schedules.
Creating innovative products: Companies can further increase their market share by being the first in their industry to come up with new, innovative technologies. This allows them to stay ahead of their competitors, and may persuade customers to switch over to their brand.
Strengthening customer retention: Building customer loyalty is an effective way to ensure that people will consistently choose one company over another. When companies build a loyal community around their brand, customers are more likely to stick with their products rather than switching over to a competitor. In addition, loyal customers are a great source of word of mouth marketing, since they can recommend these products to their friends.
Acquiring a competitor: This strategy eliminates some of the competition, helping companies increase their market share as a result. It also allows companies to reach the acquired firm’s existing customer base.
Examples of market share
Let’s take a look at some real-world examples of market share in relation to actual marketing strategies:
Tesla is a company in the automotive industry that produces electric cars. This company is hugely successful in its field, with a market share of 79% in the electric vehicles industry in the US. It’s important to note that within the US automobile industry, Tesla’s market share hovers around just 2% - after all, only a very small proportion of the automobile industry is electric. This is an example of why it’s important to analyze your market share in relation to your direct competitors.
Another company with a high market share is Google. Google is widely used throughout most countries, making its market share worldwide. Within the global search market, Google has a market share of almost 90%. Its competitor Bing, on the other hand, has a market share of just 6.7%. These numbers are a powerful indicator of Google’s dominance in relation to other search engines.