Market Share – Meaning, Importance, Calculation, Factors and how to increase it

Market share is the total proportion or percentage share of total sales made by a particular company in any industry. It is the proportion of a market that belongs to a particular business entity.

A company’s market share is its portion of total sales in the industry or market that it belongs to. Market share can be measured by volume or value. Market share by value is a company’s total share of the industry’s total sales in monetary terms. Market share by volume is the total number of units a company sold out of the total number of unit sales in the market.

Importance of Market Share

• Market Share is used to get a rough idea of how large a company is compared to its competitors and market.
• Investors keep a close eye on market share.
• It shows the relative competitiveness of services and products offered by the company.
• Market share measures a consumers’ preference for a product in comparison to similar products.
• A higher market share means more sales.
• Less effort is needed to sell more, and there is a high barrier to entry for competitors.
• A company with a high market share has an advantage.
• It can negotiate with distribution channel members and suppliers on better terms.

How to Calculate Market Share | Formula of Market Share

Market share can be measured by calculating the company’s sales over a time period. Market share can be measured by calculating the company’s sales over a time period.

Formula – Market Share = (Total Company Sales / Total Industry Sales) * 100

Example –  Let’s say in 2020 in a country, a company’s total sales of passenger vehicles is 1 million units, and total sales of passenger vehicle units in the country are 5 million in the same year.

Then, the company’s market share would be =- 20%. Market Share = (1 Million Units / 5 Million Units) * 100 = 20%.

Impact of Market Share

1. Economies of Scale

• When a company’s market share grows, it lets it work on a larger scale.
• Its profitability increases.
• It gives the company a cost advantage over its competition.

2. Growth in Sales

• Market share growth also makes a company’s total sales grow.
• If consumers see that most of their peers are loyal to a brand, then they also want to purchase the product.

3. Prestige

• If market share grows, it improves the reputation of a company.
• A good reputation then expands the customer base and increases sales.

4. The rise in Bargaining Power

• If market share is growing, then a company begins to dominate its industry.
• When dominance grows, it can use certain powers.
• Example  – Greater Bargaining Power

5. Ruling the Industry

• A company begins to dominate its industry when market share expands.

How to Increase Market Share

1. Through Acquisition

• When a company acquires a competitor, it gets a new customer base.
• It also reduces the number of competitors and lets it dominate an industry.
• Its market share also grows.

2. Through Innovation

• Innovation can be a new production method, new product, new technology in the market that competitors haven’t offered yet.
• Innovation helps a company get an advantage over the competition and dominate its industry.

3. By Decreasing Prices

• A company can also grow its market share by decreasing its prices.
• Lower prices draw more customers.
• It expands the customer base and increases total sales.
• Thus, it increases the company’s market share.

4. Reinforcing Customer Relationships

• Companies guard their market share by making their relationships with customers stronger.
• This makes sure its customer base isn’t decreased by competition.
• Companies use loyalty programs to improve customer relations.

5. Brand Awareness

• National marketing and brand awareness are very important for increasing market share.
• It’s crucial that a company’s name is known to customers.
• When a brand is a household name and is preferred in its industry, its market share increases.

6. Better Quality

• Customers are beginning to pay attention to a product’s quality along with its price.
• When quality standards grow, a company’s market share increases along with it.

Examples of Market Share – Tesla

Tesla Increased its global market share to about 16.2% in 2019, with the Model 3 alone accounting for 13 % of sales.

Examples of Market Share – iPhone 12

Global Top 10 5G Smartphone Models’ Sales Market Share [October 2020]

The iPhone 12 became the world’s best-selling 5G smartphone model in October 2020. The iPhone 12 Pro, which was also launched alongside the iPhone 12, was the second best-selling 5G model for the month, according to Counterpoint Research’s Monthly Market Pulse Service. The iPhone 12 and 12 Pro together captured close to one-fourth of the total 5G smartphone sales in October.

Examples of Market Share – Beer Companies

Global Market Share of the Leading Beer Companies in 2019 (Based on Volume Sales)

Examples of Market Share – Smartwatch Market

Global Smartwatch Market (H1 2020)

• In the first half of 2020, 69% of the total market revenue was earned by the top three brands.
• The worldwide market for smartwatches saw revenue increase by 20% in the first half of 2020.
• This was in spite of shipments staying flat compared to H1 2019 and the COVID-19 pandemic.
• This is based on Counterpoint’s IoT service’s recent study.