Market share is the percentage of total revenues in an industry generated by a single company. Market share is calculated by dividing the company's sales throughout the period by the industry's total sales during the same time. This indicator is used to provide an overview of a company's size in relation to its market and competitors. An industry's market leader is the company having the biggest market share.
Understanding the concept of market share
A company's market share is its proportion of total revenues relative to the market or industry in which it operates. To calculate a company's market share, first choose a time period to study. It could be a fiscal quarter, a year, or several years. Next, compute the company's overall sales throughout that time period. Then, determine the overall revenues for the company's industry. Finally, divide the company's entire revenue by the industry's total sales. For example, if a company sold $100 million in tractors domestically last year and sold $200 million total in the United States, the company's U.S. market share for tractors would be 50%.
Companies typically calculate their market share for certain nations or regions, such as North America or Canada. Investors can receive market share statistics from a variety of independent sources, including trade associations and regulatory authorities, as well as from the firm itself; nevertheless, some industries are more difficult to accurately quantify than others.
How to calculate market share: divide total company sales by total industry sales
Benefits of market share
Investors and analysts closely track increases and declines in market share because they can indicate the relative competitiveness of a company's products or services. As the entire market for a product or service expands, a company that maintains its market share sees revenues grow at the same rate. A corporation that expands its market share will increase its revenue faster than its competitors.
Gains or losses in market share can have a substantial impact on a company's stock performance, depending on the industry. Increased market share can help a corporation reach greater operational scale and profitability. A corporation can aim to increase its market share by cutting pricing, advertising, or launching new or different items. Furthermore, it can increase its market share by targeting different groups or demographics.
Impact of market share
Changes in market share have a greater impact on the success of businesses in mature or cyclical industries with slow development. Companies in growth industries, on the other hand, are less affected by fluctuations in market share. Because the total pie in these industries is expanding, businesses can continue to generate sales even if they are losing market share. For companies in this circumstance, sales growth and margins have a greater impact on stock performance than other factors.
In cyclical sectors, competition for market share is fierce. Economic considerations influence sales, earnings, and margins more than other aspects. Due to competition, margins are typically minimal, and operations run at maximum efficiency. Because sales come at the expense of other businesses, they engage substantially in marketing campaigns or even loss leaders to attract customers.
In some industries, businesses may be willing to lose money on items in order to drive competitors to give up or declare bankruptcy. When they get a larger market share and competitors are eliminated, they try to raise prices. This tactic can either work or backfire, increasing their losses; yet, this is why several industries, such as discount wholesale retail, are controlled by a few major competitors, like Sam's Club, BJ's Wholesale Club, and Costco.
How can corporates increase their market share
A corporation can grow its market share by providing innovative technologies to its clients, increasing customer loyalty, attracting exceptional people, and purchasing competitors.
New technology can help companies expand market share. When a company introduces a new technology that its competitors have yet to offer, customers who want to possess the technology purchase it from that company, even if they previously did business with a competitor. Many of such people become devoted clients, increasing the company's market share while decreasing the market share of the company from which they switched.
Customer Loyalty
Companies defend their existing market share by improving customer connections, preventing current customers from defecting when a competitor introduces a compelling new offering. Better yet, companies may increase market share using the same easy strategy, as delighted consumers usually recommend their pleasant experience to friends and family, who then become new customers. Gaining market share through word of mouth boosts a company's revenues without increasing marketing costs.
Human resource
Companies having the largest market share in their respective industries usually always employ the most competent and dedicated staff. Bringing the finest personnel on board minimises costs associated with turnover and training, allowing businesses to concentrate more resources to their core capabilities. Offering competitive salary and benefits is one proven strategy to recruit the finest employees; but, employees in the twenty-first century also value intangible benefits such as flexible hours and casual work environments.
Acquisitions
Finally, one of the most reliable ways to expand market share is to acquire a competitor. By doing so, a corporation achieves two objectives. It taps into the newly acquired firm's current customer base while reducing the number of enterprises competing for a piece of the same pie by one. Shrewd executives, whether in charge of tiny enterprises or giant corporations, are always on the lookout for a suitable acquisition transaction when their companies are in the growth phase.
Author's Detail:
Swasti Dharmadhikari /
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Swasti an agile and achievement-focused market researcher with an innate ardor for deciphering the intricacies of the Service & Software sector. Backed by a profound insight into technology trends and consumer dynamics, she has committed herself to meticulously navigating the ever-evolving terrain of digital Services and software solutions.
In her current role, Swasti manages research for service and software category, leading initiatives to uncover market opportunities and enhance competitive positioning. Her strong analytical skills and ability to provide clear, impactful findings have been crucial to her team’s success. With an expertise in market research analysis, She is adept at dissecting complex problems, extracting meaningful insights, and translating them into actionable recommendations, Swasti remains an invaluable asset in the dynamic landscape of market research.
