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