Definition

Market Share

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What is Market Share?

Market share can be defined as the percentage of the market held by a particular entity. It can also be defined as a share of the total purchase of a product by customers that goes to a company. Market share reflects a company’s competitiveness in the market and is comparable across countries. It can be obtained by dividing the total sales of a company for a specified period by the total sales of an industry over the same period. For an industry, the market leader is a company with the highest market share. That company is said to dominate the industry with respect to the sale of a product.

Summary
  • Market share can also be defined as the company’s total sales with respect to the overall industry sales in which it operates.
  • Market share reflects a company’s competitiveness in the market and is comparable across countries.
  • Market share can be obtained by dividing the total sales of a company for a specified period by the total sales of an industry over the same period.
  • Market share reflects a company’s competitiveness in the market and is comparable across countries.

Frequently Asked Questions

How do we calculate a company’s market share?

Market share can be defined as the percentage of the market held by a particular entity. To calculate market share, it is prerequisite to determine the time period in which it should be calculated, whether it is to be calculated for a quarter, one financial year or for multiple years. This is followed by a calculation of company’s total sales for that period and the overall sales of the industry for the same period. The final step is to divide the total revenue of a company by the total sale of the industry. For example, if an automobile company sold $400 million in cars in the previous year, while the total amount of cars sold in Canada was $800 million, then the company’s market share in Canada for cars would be 50 percent.  In order to develop business strategies investors can pick up the market share date from various sources like the trade groups or the concerned companies. However, inaccurate data is never helpful as it can provide wrong information and thus negatively affecting the business strategy of a company.

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In what ways market shares can prove to be useful?

Usually, traders watch the increase or decrease of the market shares very carefully as it helps them to analyse the market competitiveness of a company’s products. If a company's products witness a considerable market growth, then it means that the company which has its market share is also seeing a growth in its revenues at the same rate.

Growth in market share helps a company make profits. A company can use various marketing techniques to its market share. This involves an appeal to the target audience to prefer their products or service over other products and services available in the market. Furthermore, any gain or share in the market share can affect a company’s stock performance in the stock market.

Discuss the impact of increase or drop in market shares for different industries?

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Any fluctuation in market share can largely affect the performance of those companies which belong to cyclical industries i.e. the companies which are sensitive and usually involved in the production of durable goods. These industries have low growth. On the contrary, fluctuation in market share have no or very limited impact on the companies in the growth industries. Growth industries are those industries which have a higher-than-average growth rate. In the case of cyclical industries, there is tough competition between companies in terms of market share. Given the high competition and low margins they incur a lot of expense in marketing activities to boost their sales.

Here, the companies are ready to invest money on certain products to force competitors to become bankrupt. To make up for these loses they most often raise the prices once they ousted their competitors and there is an increase in their market share. However, this strategy is more of a gamble as there are chances that it might or might not work. If it backfires, it serves as a big loss.

In what all ways an increase in a company’s market share can be helpful?

  1. Increase in profit - If a company witnesses an increase in its market share, then there are chances that it will expand its business operations, and this is likely to generate more profits for the company.
  2. Increased sales - Any increase in market share helps a company increase its sales. This is primarily because when the consumers observe the brand loyalty for a certain product in their circle, there are higher chances that this will influence them, and they will also be driven to buy the same product.
  3. Increased customer base - Any increase in market share leads to the widening of a company’s customer base. Customer behaviour is such that they avoid taking risks, hence they prefer to follow the majority in their decision making. If most of the consumers prefer one product, others tend to follow.
  4. Reputation - Increase in market share can enhance a company’s reputation.
  5. Dominating the industry - With higher market shares a company can easily dominate any given market.
  6. Increased bargaining power - Many a times it is true that a dominating company exercises greater bargaining power. This gives it an upper hand in influencing the decisions related to market regulations, to its advantage.

What are the different ways to increase market share?

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  1. Innovation - Innovation is the key for a company to increase its market share. This could mean technological advancement also, whereby, companies introduce new technology to the customers ahead of their competitors. Other forms can be -- product innovation or production method innovation. Innovation helps a company establish its dominance in the market.
  2. Lowering prices - Another common method used by companies to increase their market share is by lowering the price of the products and services they offer. If prices are lowered, more and more customers will buy a product given the price sensitivity nature of the consumers.
  3. Strengthening customer relationships - Companies generally have their traditional customers, means an existing customer base. No matter what, no company can afford to lose them. Given the high competition, companies try to maintain this section of customers intact through effective communication and ensuring customer satisfaction.
  4. Advertising - There are companies who allot a specific amount for the advertising purpose, as it is one of the most effective tools to increase market share. Advertisements not only help in creating brand awareness but also help brands become popular by influencing consumer’s behaviour to a great extent.
  5. Enhancing quality - By the way of enhancement of a products quality, companies market share can be increased. When it comes to the choose of products, products quality plays an important role.
  6. Acquisition - Acquisition of competitors can help a company establish its dominance over their counterparts. Through acquisitions, a company is not only able to eliminate competition, but also gets access to new customer base.