What is market share? Definition and meaning
Market share is the proportion of total sales a company claims to have in a particular market over a specified period, i.e. the size of a business relative to the size of the industry. Total sales may be measured by volume (unit share) or value (revenue share).
Marketing managers tend to follow both measures – sales volume and sales value – closely. A survey of almost 200 senior marketing managers found that 67% found the ‘dollar share’ metric very useful, while 61% found the ‘unit share’ very useful.
Market share may be a measure of percentage of total sales in a city, region, country, continent or the world.
Apple increased its smartphone market share in the US while Samsung’s declined. (Data Source: comscore.com)
Market share by volume or value of sales
By volume: If John Doe Autos Ltd. sold 100,000 cars in London in 2014, and the whole market in the city for the year was 1,000,000 cars, John Doe had a market share by volume (unit market share) of 10%.
Unit Market Share = Number of Units Sold by Company ÷ Number of Units in Whole Market x 100
(100,000 ÷ 1,000,000 x 100 = 10%)
By value of sales: If John Doe Autos Inc. sole $50 million’s worth of cars in New York in 2014, and the whole market in the city for the year was $1,000 million, its market share by value of sales (revenue market share) was 5%.
Revenue Market Share = Value of Company’s Total Sales ÷ Value of Total Market x 100
(50,000,000 ÷ 1,000,000,000 x 100 =5%)
While a company’s own sales figures are easy to obtain, getting total market sales are not so easy. Generally, this information is available from market research firms and trade associations.
Managers carefully monitor their company’s (or product’s) market share because it may be a sign of the firm’s relative competitiveness. If sales grow at the same rate as whole market, market share has remained constant. If its growth exceeds the market’s rate of expansion, market share is getting bigger.
Increasing market share not always desirable
You would think that there could never be a reason for a company to decide not to try to increase market share – but there are some.
– If the company is close to production capacity, trying to produce more might mean investing in additional capacity. If this extra capacity is not utilized fully, costs will be considerably higher.
– Profits may fall if market share is increased by spending more on promotions or slashing prices.
– Rivals and other competitors may start a price war in an attempt to regain their share.
– If you already dominate the market, increasing your market share may result in antitrust issues.
According to Cambridge Dictionaries Online, market share is:
“The number of things that a company sells compared with the number of things of the same type that other companies sell.”
Video – How to calculate market share