Suppose you run a retail store in town having a population of 0.2 million. Of course, you will be facing competition (either low, medium, or high). But, out of those 0.2 million, 50,000 people are your regular customers. This means that you are selling your products to 1/4th of the total population.
If we are to speak in business language, technically, you are serving 25 percent of the market. Or, your market share in the retail industry of that particular town is 25 percent. A 25 percent market share also means you are an industry giant in that specific town and have a massive impact on its retail industry.
So, now that we know what is market share, let’s explore it in detail.
What Is Market Share?
Market share, in the simplest of terms, is a company’s sales percentage in relation to the overall sales in a specific market or industry. It reflects a company’s dominance and position in a specific market.
Market share is a general metric to assess a company’s standing in the relevant market. That said, it shows how successfully a company is operating in comparison to its competitors/market.
The term “specific market” is important in this context. For instance, Apple’s iPhone (smartphones market) had a market share of 2 percent in India in 2020. However, in the Chinese smartphone market, iPhone had a soaring 20 percent share in the last quarter of 2020.
Importance Of Market Share
The market share of any business can affect it in multiple ways.
- Increase In Sales. Well, a company having a considerable or major market share often sees its sales going upwards. It is because when a company has a massive customer base and loyal customers, other potential customers will defiantly think about giving it a try. When a product becomes famous, people even try it out of curiosity.
- Economies Of Scale. A greater market share means a company has a huge customer base. This makes mass-scale production easier for the company to achieve economies of scale. Most importantly, the cost of production decreases, and profitability increases.
- Brand Image. A company cannot grab a major place in any market without delivering quality. When you have a considerable market share, your brand image will make its way easily. Thus, it will increase your sales and customer base.
- Increasing Customer Base. If you are a well-known brand in the market, you will definitely have a huge and loyal customer base. This will “inspire” people to buy your product.
- Better Bargaining Power. When a company succeeds in grabbing a massive market chunk or becomes the industry leader, it allows the company to have strong bargaining power. Such a company can easily bargain with suppliers or distributors, etc.
- Easy To Expand. When a company acquires the “industry leader” position, it can step into new or relative fields easily because of its brand image and reputation. For instance, Tesla is famous for many things, and the Cybertruck from Tesla is something everyone is talking about. Interestingly, the Cybertruck is not even in its production phase, but “if it is from Tesla, it is going to be exciting.”
How to Calculate Market Share?
Calculating the market share depends on two things
- Your company’s total sales
- Total sales of the market
The formula goes like this:
Market share = Company’s Total Sales (Units / $’s) / Total Market Sales (Units / $’s)
Now, it is very important to understand that market share can be calculated with the help of two different variables.
A company can calculate its market share on the basis of:
- The total number of products sold in comparison to the market.
- The amount of revenue generated from the products sold with respect to the market.
Point 1: if a company sold 1 million smartphones in a specific market in one year while the total number of smartphones sold in the market is 10 million, then the company’s market share will be 10 percent.
Point 2: if a company sold smartphones worth 1 million USD in a specific market in one year while the total revenue generated by all the companies in the market is 10 million USD, then the company’s market share will be 10 percent.
Market Share Vs. Relative Market Share
Market share or absolute market share is slightly different from the relative market share.
|Basis of Differentiation||Market Share Or Absolute Market Share||Relative Market Share|
|Definition||Market share means a company’s sales percentage in relation to the overall sales in a specific market or industry.||Relative market share is a company’s performance compared with the industry leader/most powerful competitor.|
|Formula||Company’s Total Sales / Total Market Sales||Company’s Total Sales / Industry leader’s sales|
|Basis of comparison||It is a comparison between a firm and all its competitors.||It is a comparison between a company and the industry leader/biggest competitor.|
How To Maintain Market Share?
They say it is relatively easier to achieve something distinctive but to maintain that distinction is very difficult. If a firm has succeeded in getting a fair market share, here is how the firm can maintain it.
- Keep launching effective marketing or advertising campaigns
- Identify those products which are in danger of being “overthrown” by the competitors or lose market share. If there are any, then consider reducing their prices.
- Keep your distributors happy with exciting new products as well as in-demand products.
- Innovation is the lifeline in modern markets, and that is why it is important to facilitate your customers with innovative products. Otherwise, you may lose your share in the market.
- It is simply impossible to maintain or increase your market share if you don’t have loyal customers. Ask them about their preferences (customer surveys) and provide them with what they want.
How to Increase Market Share?
Here is a step by step guide to increase your market share.
Stay Ahead of Your Competitors – Innovation
Some companies maintain or increase their market share by offering something better than their competitors. However, few companies do it by offering it for the first time, or you can say, some companies do it by being innovative.
For instance, Blockbuster Inc. was a household name in the 80s and 90s. The company used to deal in renting movies and video games via DVDs and VCR cassettes. However, Netflix and Amazon started offering online streaming. Blockbuster, on the other hand, refused to adopt this innovation, and the rest is history.
Market Your Brand to Small Niche Audiences
Really? How can you increase your market share by targeting small niches? Well, the thing is, synergies are always stronger than individual efforts. Rather than targeting a macro niche, you can market your products to multiple smaller niches.
For example, you sell accounting software, but you have strong competitors in the market. So why would people buy from you? Alternatively, you can target smaller niches by developing software for small companies, start-up businesses, local retailers, etc. when you combine these smaller markets; it will become a bigger market.
Develop Effective Advertising and Marketing Strategies
When a brand is facing fearsome competition and is not offering much of variation in its products, then it should focus on effective marketing strategies. If you can stand out with your unique and effective marketing campaigns, you are most likely to get the upper hand over your competitors.
Increase Customer Engagement and Strengthen Customer Relationship
It is easier to keep a customer than converting a new one. Engaging your customers on a regular basis can help you win their loyalty. Of course, you need to provide them with quality products, but it is equally important to get their feedback and suggestions. Besides, happy and loyal customers can bring new customers because word of mouth is still a very effective form of marketing.
Acquire Your Competitors
“Buy your competitors and reduce/eliminate competition” is another way to increase your market share. Instagram was a potential competitor of Facebook, but Facebook acquired Instagram for 1 billion USD in 2012. Although it was a shocking acquisition for many as Instagram was a 13-employee organization back then. However, Instagram now has more than 1 billion users and earns more than 20 billion dollars yearly.
Build A Referral Program
As mentioned earlier, it is difficult to acquire new customers than keeping the old ones. This phenomenon is more applicable in the B2B market. That is why B2B companies heavily rely on these referral programs. Get as many referrals as you can and ask for them whenever it is possible.
Well, a business cannot last long if it fails to provide quality products. Yes, people love innovation, but they would never compromise on quality. If a company is known for its reliability, durability, and safety, then any compromise on these features will be very costly for the company.
Sometimes, a company has to lower its market prices to maintain or increase its market share. This is very common in new companies whose main objective is to penetrate the market and increase their market share.