What is market share? How to calculate market share
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, i.e., 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.
The share may be a measure of percentage of total sales in a city, region, country, or continent. It may also be a percentage share of the global market.
Calculating market share – volume or sales value
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) share of the market because it may be a sign of the firm’s relative competitiveness. If sales grow at the same rate as whole market, the share of the market 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 its share of the market. However, 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 a company raises its share of the market 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.
Cambridge Dictionaries Online, has the following definition of the term:
“The number of things that a company sells compared with the number of things of the same type that other companies sell.”
Blue Ocean Strategy
In a saturated market, gaining a greater share of the market eventually becomes impossible. That is when a Blue Ocean Strategy becomes an interesting option.
This strategy involves entering a market where no rivals exist. The Blue Ocean Strategy theory was put forward by two INSEAD professors in 2005.