Market Share: An In-Depth Guide

July 13, 2022

Areej M Alturki
Founder, Nakla

Market share is used to get a sense of a firm's size in relation to its opponents. In simple words, it is the share or proportion of a market earned by a firm. 

Knowing and analyzing your company's market share is vital for several reasons, including greater awareness of your competition and consumer loyalty. In this post, we will look at what market share is, the benefits of market shares, how firms may expand their market share, and instances of market share

What is a Market Share?

Market share refers to the percentage of an industry's revenues that it possesses. Technically, it is the percentage of overall sector income earned by your company from the sale of its products and services. 

In simple terms, market occupancy is how much area the firm occupies in a particular market. Thus, if an organization sells 60% of all apples in the apple industry, that organization is said to have a 60% share of the market for that sector. Market share is typically evaluated once every year or at regular periods.

Most organizations that keep an account of their revenues remain updated about the sales done in a specific industry or category. However, they may not know their total market share. This is because data on overall sales in a sector is gathered and disclosed by the administrative body, or industry association.

The government collects this information every four years in years that end in two and seven (for instance, 2012 and 2017). Alternatively, other business groups and regulatory bodies gather it yearly or quarterly. In certain businesses, determining the total market share is unattainable.

Why is market share substantial?

Market share is an essential indicator that businesses may use to assess the efficacy of any potential revenue-generating action, such as advertising campaigns, branding strategies, or CRM solutions.

The reason for this is seamless: market share helps you analyze how you relate to your competitors. It enables you to measure the influence of your strategy and tactical execution on company results. Also, it permits you to ask previously unanswered questions about your success.

In simple terms, market share is commonly acknowledged as an essential component of corporate profitability.

Companies with more than 40% market shares have double the business's profitability with just a 10% market dominance. It is predicted that for every 10% gain in market share, the ROI increases by 5%.

Because market share indicates customers' or companies' choice for one item over similar items, a larger market share typically equals better sales, less work required to sell more, and a higher hurdle of entrance for new rivals.

Furthermore, as market share is an essential indicator of market competition, it allows leaders to discover significant patterns in buyer behavior. Also, it helps to evaluate overall market growth or decrease and grasp both their market opportunity and potential.

Organizations may also evaluate customer perception of new offerings, marketing, pricing tactics, and other vital business operations by assessing market share. This positions them in excellent condition for profit growth.

How is market share calculated?

Irrespective of industry, determining market share is a relatively hassle-free procedure. To determine market share for overall sales, follow these steps:

Choose a Fiscal Period:

The foremost step to estimate an organization's market share is to choose the fiscal period under consideration. This might be a fiscal quarter, month, or time.

Calculation of the Organization's Sale:

The following step is to compute the overall sales for the concerned company for the projected period. Organizations with products in many sectors would measure their market occupation for every industry individually, rather than relying on overall sales.

For Instance: 

A grocery shop that sells culinary, and furnishings would assess its market share in the supermarket business solely on food sales. They would compute individual market occupancy values for apparel, furnishings, etc.

Calculate Industry Sales:

Determine overall sales for the whole market after computing total sales for each firm. This data is commonly accessible via research publications and industry organizations. Furthermore, if a business is owned by a few large shops with little smaller business sales, you may aggregate the revenues of the big stores to compute overall market sales.

Divide:

The last step is to divide the entire sales of the specific firm by the industry's total sales. This computation will yield a decimal figure that may be multiplied by 100 to yield a percentage.

So, the formula for calculating market share is:

Formula:

Market share= Total Company Sales/Total Industry Sales

How to increase Market Shares?

A corporation may expand its market share by providing innovative technologies to clients, developing consumer trust, attracting personnel, and buying competitors.

Latest Technology

One way for a firm to gain market share is via creativity. When a firm introduces a new technology that its opponents have yet to provide, customers who want to possess it purchase it from that organization even if they formerly conducted business with a peer. Most of such clients become devoted clients, increasing your market share while decreasing the business's market share from which they transferred.

Keep Relevance

Businesses must retain their credibility within their sector in today's modern environment. One approach to accomplish this is to constantly innovate and develop trendy goods and services focused on your firm's target audience. Other tactics to stay relevant include checking in with your consumers to discover what they like or dislike about your services. Also, try to optimize the customer experience and keep them engaged via marketing activities.

Lowering Costs

Price reduction can also help a firm increase its market share. Lowering costs will grab the attention of more consumers, broaden the client base, and improve sales. This, in turn, will boost the company's market share.

Make your consumers happy

Working on current client connections is one of the most acceptable methods to increase your market share.

You can encourage consumer loyalty by pleasing existing clients with outstanding experiences. Clients faithful to you are prone to make repeat purchases, which boosts your company's income and contribution to overall industry sales. As previously said, more significant revenue stocks result in a greater market share percentage.

Consider an acquisition

You may enhance your market share by acquiring a firm whose goods or services complement your own. This will need some study, but the final result might be a higher market share.

Firms typically acquire businesses in order to increase their market share or extend their line of products. Microsoft, for instance, operates LinkedIn and GitHub. While the former may expand market share in social networking income, the latter can increase market share in cloud OS profit.

Develop an Exceptional Brand Position

Differentiating oneself from the opposition is a vital part of increasing market share. Consumers will tend to purchase from you if you distinguish from the competitors in your field. One strategy to develop a brand image is to investigate what your competitors lack and incorporate that into your company plan.

Benefits of Market Share

Though market share does not offer a comprehensive view of a company's financial success, it does offer crucial insights into earnings, development, and net earnings. This is related to scale economies. The larger the firm, the more cost-effectively it can serve a more significant amount of clients.

Firms having a larger market share can buy items or resources in bulk at a lower cost. As a result, even at the exact cost as its competitors, a larger company with a larger market share will have a higher net profit, making it a more robust company overall. Bulk purchasing also enables the firm to offer additional discounts or offers. This improves the probability that consumers from competitors may change brands and growing market share even further.

Overall, it indicates that market share is a significant driver within such a corporation with a cumulative effect. The larger the firm, the more easily it can supply items to clients and gain market share. As that firm gains market share, the cycle repeats again.

Where to find a company's market share?

It can be challenging to find a company's market share at times. However, a firm's 10-K report is perfect to begin your search for getting accurate data. A 10-K is a detailed report on a public firm's yearly financial performance. Businesses will frequently break down market share into distinct markets.

There are some companies that do not publish their market share in their 10-K report. However, they do provide every detail that you require to determine it. It's advisable to calculate market share based on what the firm discloses because it's generally the most accurate.

Conclusion

Changes in market share have a more substantial influence on firm success in established or cyclical sectors with limited growth. On the other hand, it has less impact on enterprises in rising industries.

Market share seems to be a critical driver within a corporation, with a cumulative effect. The larger the firm, the more easily it can supply items to clients and gain market share. As that firm gains market share, the cycle repeats again.

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