Definition
Market share refers to the percentage of a specific industry’s sales that are earned by a particular company. It is calculated by dividing the company’s total sales over a specified period by the industry’s total sales during the same period. A higher market share indicates a larger portion of the market being controlled by the given company.
Phonetic
The phonetic pronunciation of “Market Share” is: /ˈmɑːrkɪt ʃɛər/
Key Takeaways
- Market Share Indicates Market Position: Market share offers a measure of the size of a company relative to its market and competitors. A company with a larger market share means that the company holds a significant part of the sale in the market, indicating a more dominant position in the industry.
- Growth Opportunity Indicator: A high market share often indicates a good potential for growth. It signifies that a company is well-positioned in the market, and customers prefer their products or services more than the competitors. Through leveraging this dominance, businesses can capture new markets, attract a larger customer base, and bring in higher revenues.
- Competition Analysis: Understanding a company’s market share helps to evaluate the competitive landscape of the industry. It helps businesses identify who their main competitors are, understand their market strategy, assess threats from rivals, and formulate counter strategies.
Importance
Market Share is a vital business and finance term as it represents a company’s proportion of sales in the total market. It’s an indicator of market competitiveness, growth and overall business performance. Businesses with high market share often benefit from cost advantages due to economies of scale and can command a greater say in negotiations with suppliers and channel partners. Tracking market share provides a clear operational target and a benchmark against competitors. It is regarded as a key performance indicator, enabling businesses to assess the effectiveness of their marketing strategies, understand customers’ preferences, and adjust their approaches accordingly. Plus, businesses with a significant market share can attract investors as it often signals strong customer loyalty and brand preference.
Explanation
Market share is an essential metric used by businesses to evaluate their competitiveness and assess their standing within an industry. A company’s market share gives insight into its size relative to the market. It provides a quantitative basis on which a company can assess their performance against industry competitors at large. The higher the market share, the more control a company has within the industry, often indicating larger amounts of profit and more significant influence over market trends. Moreover, by monitoring changes in market share over time, a company can identify market growth or decline, the success of marketing strategies, and potential opportunities or threats. For example, if a company’s market share is growing, it’s an indicator of business health and successful business practices. Conversely, a decline may signal a need for change. Thus, market share serves as a crucial gauge in developing future business strategies and making informed corporate decisions.
Examples
1. Smartphone Industry:In the smartphone industry, Apple, Samsung, and Huawei are key players. As of Q2 in 2021, Apple has around 15% of the global market share, Samsung has around 19%, and Huawei has around 16%. Each company’s respective market share is determined by its total sales volume compared to the total sales volume of the smartphone industry.2. Automobile Industry:In the auto industry, there are numerous global companies with various market shares. Toyota had around 10.24% of the global market share in 2020, along with Volkswagen Group having around 13% and General Motors Company having about 8.4%. This implies that for all cars sold globally, a large proportion were either Toyota, Volkswagen, or General Motors.3. Aviation Industry:In the aviation industry, the major competitors are Boeing and Airbus. As of 2020, both had nearly equivalent market shares, with Boeing having 43.3% of the global market and Airbus taking 56.7%. Their market share is determined by the volume of aircrafts each company delivers in comparison to total global aircraft deliveries.
Frequently Asked Questions(FAQ)
What is Market Share?
Market share refers to the percentage of the total sales in an industry generated by a particular company.
How is Market Share calculated?
Market share is calculated by taking a company’s sales over the period and dividing it by the total sales of the industry over the same period.
Why is Market Share important?
Market share is a key indicator of market competitiveness, as it describes a company’s market position relative to its competitors. Higher market shares often mean greater sales, greater customer trust, and a stronger position to increase prices.
Can a company’s market share decrease, and why?
Yes, a company’s market share can decrease due to several reasons like the entrance of new competitors, poor product quality, bad company reputation, ineffective marketing strategies, etc.
How can a company increase its market share?
A company can increase its market share through different ways like innovation, strengthening customer relationships, smart hiring practices, acquiring competitors, and exploring new markets.
How does market share impact a company’s competitive advantage?
A higher market share often gives a company a competitive advantage as it signifies a better positioning in the market. It can enable the company to negotiate better deals with suppliers and increase their purchase volume.
Is a higher market share always beneficial for a company?
While a higher market share often means greater sales and profitability, it’s not always beneficial. It may lead to complacency, invite anti-trust laws’ scrutiny, or stop the company from exploring niche markets.
What is the difference between unit market share and revenue market share?
Unit market share refers to the number of units of a product sold by a company as a percentage of total market units sold. Revenue market share refers to the revenue generated by a company for a particular product as a percentage of total market revenue.
Can a small company have the same market share as a big company?
Yes, it’s possible if the smaller company has a concentrated market presence in a specific geo-location or niche, while the larger company is spread thin across multiple markets.
Related Finance Terms
- Market Competition
- Market Penetration
- Dominant Market Player
- Market Segmentation
- Competitive Analysis
Sources for More Information
