Market Share

Joran Hofman
April 4, 2021

What is Market Share?

Market share is an indicator used to estimate what share (in percentage terms) a company has of the total sales of a product or service in a given industry or sector.

This term is closely related to marketing because to achieve a market share; it is necessary to know factors such as the geographic location of potential customers, market segmentation, brand popularity, among others.

Why is Market Share important?

This metric is undoubtedly key to know the level of competitiveness of a company in a specific market.

Knowing this factor will allow you to analyze and establish strategies to increase your market share and improve your profitability.

To achieve this, companies tend to increase their size, set lower prices to reduce the market share of their competitors, among others. There are cases in which high-risk strategies are used to eliminate the competition, even lowering revenues temporarily to gain more market share.

It should be noted that market share tends to be more important in companies with discretionary revenues than in those that are in constant growth.

How to calculate Market Share?

Calculating a company's market share is easy if you have the necessary data.

To do so, you will need to know what its total sales revenues are in a given period and what are the total revenues of the industry or sector to which the company belongs during the same period of time.

Once these two quantities are known, the first is divided by the second, and the result obtained is multiplied by one hundred.

Let's see how the formula would look like:

Market Share Formula

How to calculate your market share using the market share formula

With this calculation, we have a general appreciation of the position of a company in the market.

However, if you want to go a step further, it is recommended that you compare yourself with your direct competitors. One way to do this is with the metric called "Relative Market," which is calculated by dividing its market share by the share of its main competitors and then multiplying the result obtained by one hundred to convert it into a percentage.

This is how the formula would look like:

Relative Market Share Formula

How to use the relative market share formula to calculate your market share

How to Increase the Market Share of a Company?

To improve or increase market share, a company can apply several strategies:

  • You can innovate new technology, products, and features to attract customers who might otherwise have bought from your competitor. This is also an important factor in generating revenue and higher profit margins, as well as higher and better contributions to the industry. This ultimately leads to a higher market share.
  • Another strategy to increase market share is to foster existing customer relationships and customer loyalty through good experiences. If it is achieved, there are more probabilities that the clients committed to the company will make more purchases, and this will bring a higher participation percentage with the final result.
  • The recruitment and hiring of highly trained and talented workers prevent spending on employee turnover, causing the company to focus more on its core competencies.
  • Another way to increase market share is to offer lower prices than the competition as buyers are often looking for cheaper products. However, it must be taken into account that this option does not work well for all brands. It must be ensured that prices are attractive to customers without losing income. 
  • Also, brand awareness and national marketing are of great importance in capturing market share. It is important that the brand name is known, familiar and that it is one of the preferred brands in an industry.
  • Finally, through an acquisition, a company can reduce the number of competitors and take ownership of its customer base in the process.

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