Market share refers to the proportion of revenue that a company produces compared to the total income of the market. What exactly is the term “market? “
A market is the sum of all businesses that offer similar or identical items and solutions. They could also include companies that serve identical or comparable clients. A market area can be further broken down by one or more of the following marketing demographics:
- Specific product categories or models available in the region
- Region type (city rural, suburban residential, retail commercial, industrial)
- The type or size of the business being served (small business, large company, a large corporation, etc. )
- Age (of business or consumers)
- Household house size or type
- Or any other or another market that is subject to investigation.
Calculating Market Share
Market share is determined by first finding the total revenue for the specific market being researched. Calculating this number can be the most challenging part of the process. The figure can be derived using these methods:
- Primary research. An organization or company may hire an expert or research company to research a market and identify its size and revenue. Consultancies can also conduct these research studies independently and market the results.
- Industry associations. Many associations in the industry conduct studies of this kind frequently for members. The research could be made available open to the public to members-only or available for purchase.
- Research conducted for government studies. Government studies. U.S. Census Bureau, Small Business Administration, and other national, regional, and local government organizations regularly study markets to aid in economic planning and reporting to support their reporting. A lot of these studies are accessible on the internet at no cost.
Because these studies are conducted each year or less frequently (some major surveys are only conducted once every decade! ), the total market revenue can be an approximate estimation. Making use of the most current and reliable information available can increase the accuracy of estimates
When the total market value is calculated, the formula used to calculate the market share of a specific company is straightforward to follow:
Company’s Annual Revenues / Market’s Total Annual Revenues = Company’s Market Share
How to Calculate Market Share
A quick and straightforward formula to calculate the percentage of market shares is
Annual Company revenues (or Total market annual revenue) = Market share of the company
Why Is Market Share Important?
Concerning the market, market share can signify whether a firm is growing, stagnating, or losing ground. While it is possible to conduct it more often, an annual report is typically sufficient for most small – to medium-sized companies.
Understanding how your competitors rank and what percentage of the market they own must also be considered to determine how feasible it would be to take on more of a share of the market and which marketing strategies are most effective.
- A Few or a Few Dominant Competitors. A handful of dominating players (sometimes only one!) control the most significant percentage of revenues in several markets. In this case, smaller enterprises are unlikely to make considerable progress and could sometimes be unable to compete with pricing. Smaller companies would be better off pursuing an approach to marketing specific to distinguish their business. For instance, discount retailing is where giant retail giants Wal-Mart, Target, and Amazon share in the marketplace.
- Many equally matched Competitors. If the majority of companies in a particular market are alike regarding sizes, resources or offerings, marketing approach, and so on. The market share distribution might be equally distributed. Small changes in market share can become significant and will be closely watched. Due to the similarities between competitors, customers tend to rapidly and quickly move from one competitor to the next. Thus, marketing campaigns that encourage brand loyalty could be beneficial. For instance, cell phone companies all provide the same phones and services.
- Many Competitors, but without significant market share. There could be thousands or hundreds of small and micro companies competing in these areas. Their offerings could be similar or unique. Their competitors may not even be watching (or paying attention to) their market share. Marketing strategies typically focus on their specific company’s business model, products and personnel, or any other factor … and might not even mention how they are positioned concerning their competitors. For instance, individual crafters selling on the internet.
Market Share Ranking
Another measure of market share conducted by associations or researchers is studies that compare the performance of companies in a particular market or sector. The information can be taken from sources that are public or through surveys.
This data helps all market participants know where they stand and what is required to climb up the ladder of market share. Example: A company that is third in market share will be aware of the revenue that their most popular competitor has and help them develop goals for sales to assist them in gaining the top position.
This is not just an obsession with self-esteem. Companies with more significant revenue and market share are more likely to endure and continue participating in the market.
This article is accurate and true to the extent of the author’s knowledge. The information provided is intended for educational or entertainment only. It cannot substitute for individual counsel or professional advice regarding financial, business, technical, legal, or other issues.