Market share refers to the company's percentage of the entire sales of the market or industry in which it operates. In other words, it refers to the company's sales amount compared to that of the overall industry. Generally, market share is a metric that indicates the size of the company in an industry or market. Show Back to: MARKETING, SALES, ADVERTISING, & PR When the market share is huge, it means that the company is experiencing higher sales through the expansion of its consumer base, compared to its competitors. Market share can be categorized by product, industry or specific product. Nonetheless, this is not always what happens. This is because some firms who control a huge percentage do so as a result of the barriers that exist in the overall market or industry. This situation most of the time leads to what may be termed as, a monopolistic structure. Note that the calculation of market share applies only to specific countries. Countries that calculate market share include Canada or the United States only market share. Data for calculating market share is usually drawn from some independent sources as listed below:
However, it is worth noting that accurate measuring of market share in industries vary. This is because while investors find it easy to accurately measure market share in some industries, some do prove to be difficult for investors. To be able to calculate a firms market share, you first begin with determining the period you wish to assess. The period, in the case, may range from a year, fiscal quarter or even several years. After you have determined your period length, the second thing will be to calculate the total sales of the company over the identified period. The next step will be to determine the company industrys total sales. Example Lets assume that Company ABC sold $20 million toys in the last fiscal year. The number of toys sold in the United States amounted to $40 million. In this case, the toys market share of Company ABC in the United States would be 50 percent. Despite the market share not being able to provide a company with a definite figure as far as its profits are concerned, it does give important ideas regarding the companys growth, net profits as well as revenues. Note that when an enterprise is large, it means that it has the ability to serve a larger number of customers with efficiency as far as cost is concerned. In other words, large market share enables an enterprise to sell at a significant discount following the large orders they get from customers. This translates to high net profit margins, since the discounted sales enable the business to capture its competitors customers, attract new customers, and at the same time maintain their current customers. When there is an increase in market shares, it allows businesses to scale high in its operations and profits. Enterprises increase their market share through the following means:
Note that when you have a large market share in an industry, it works against your competitors in that you are likely to dominate the overall market (you will exercise industry monopoly). In other words, it will enable you to sell your products with very little or no competition at all. However, there are antitrust laws enacted by government bodies to ensure that businesses do not expand their market share too much to the extent of eliminating competition. It is important to note that when there is no competition in a given market, prices of commodities or services will always be costly. This is because prices in that market are determined by one entity, which will always be higher because there are no competitors to offer challenge. Notably, there are some industries who prefer not to have 100% market shares because of the risk associated with holding a large market share. Financial institutions such as banks and insurance companies are a good example. They prefer having just a percentage of market share that will enable them to comfortably carry on with their operations and at the same time make profits. Such institutions believe in the notion that the bigger the market share, the higher the risk. For this reason, they would rather have a market share that is average so that in case of any catastrophe, they would not incur huge losses are a result of holding a large market share. Companies in an industry with low growth are largely affected in terms of performance whenever there are changes in market share. This contrary to those companies in an industry with steady and rapid growth. The market share impact in this industry is generally less. Note that market share competition in cyclical industries is usually ruthless. In this type of industries, economic factors such as sales variance, earnings, and margins play a bigger role as far as market share is concerned. Due to competition, the margins are usually below with maximum efficient operations. Also, in cyclical industries, companies are usually ready to temporarily lose money so that they can force their competitors out of the market. Once they eliminate their competitors from the market and able to control the greatest market share, they then increase the price of products or services in that particular industry. It is, however, important to note that this kind of strategy can work for you and at the same time work against you leading to huge loses. Note that despite market share is beneficial to businesses, it, however, comes with its own disadvantages. These disadvantages make businesses to find it unsuitable to increase their market share in the industry in which they operate. Some of the disadvantages include the following:
Related Topics
What does increase market share means?What does it mean to increase market share? To increase market share means increasing the effort you put into sales as a business, and using new or additional strategies to help you get there. Market share is the percent of total sales in an industry generated by a particular company.
Is it good to increase market share?Higher market share can help improve sales when existing, brand-loyal customers buy more of a company's products. Market share may also widen a company's overall customer base as potential new customers follow the lead of existing ones. Gaining market share can strengthen and spotlight a company's reputation.
What factors increase market share?Increase your market share. selling more to existing customers.. focusing your customer service and marketing efforts on retaining customers.. expanding your customer base to include similar people who are not currently customers.. selling through new channels or into new markets.. What does it mean to have a 50% market share?For example, if a company sells $50 million in product during one fiscal year and the company's industry sells a total of $100 million in the same product during that fiscal year, the company's market share for that product would be 50% ($50 million divided by $100 million = 0.50 or 50%).
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