Definition
Market share refers to the percentage of an industry’s total sales that is earned by a particular company over a specified time period. It is used to provide a general idea of the size of a company in relation to its market and competitors. It can be determined by dividing a company’s total sales over a given period by the total sales of the industry over the same period.
Key Takeaways
- Market Share is a key indicator of a company’s competitiveness. It allows businesses to understand their absolute scale compared to their rivals in the industry. An organization with a high market share is considered to be the market leader.
- Market Share is calculated by dividing the company’s total sales by the total sales of the industry and multiplying the result by 100. It represents the percentage of an industry’s sales that a particular company owns.
- It is crucial for businesses to increase their market shares as it is often associated with profitability. However, it’s important not only to focus on gaining a large market share, but also maintaining it through continuous improvements and customer satisfaction.
Importance
Market share is a crucial financial term as it provides a clear perspective on a company’s competitive standing in the marketplace. It represents the portion of total sales in an industry generated by a particular company over a specific period.
A higher market share indicates greater market dominance, customer preference, and business health. It’s a key indicator of market competitiveness, helping companies to understand their market strength or weakness, track their marketing strategies’ effectiveness, and assess the potential for growth.
Market share data supports strategic decision-making, indicating when it may be suitable to expand or necessary to implement efficiencies. It provides valuable insight into how well a company is doing compared to its competitors.
Explanation
Market share denotes the proportion of an industry or market’s total sales that is earned by a particular company over a specified time period. It’s a significant indicator because not only does it allow a company to understand its overall competitiveness, but it also provides insight into its position within its industry landscape.
It shows if a company is leading, lagging behind, or performing on a par with its competitors. Hence, increasing market share is one of the primary goals for any business aiming for leadership or maintaining leadership in its industry.
A company uses its market share as a benchmark to compare its performance with industry peers. It helps in identifying potential opportunities, threats, strengths, or weaknesses in the marketplace.
Additionally, market share allows the company to assess the effectiveness of its marketing strategies and implement necessary changes to improve and maintain its competitive position over a period. For investors, analyzing a company’s relative market share offers crucial insights into whether to consider directing their investment towards that company.
Examples of Market Share
Apple Inc.’s Market Share in the Smartphone Industry: As of the end of 2020, Apple Inc. held about
9% of the global smartphone market share, according to the International Data Corporation (IDC). This market share is determined by comparing Apple’s smartphone sales to the total global smartphone sales.
Walmart’s Market Share in the U.S. Retail Market: According to Statista, Walmart held about 5% of the US retail market share in
This figure can be determined by comparing Walmart’s total retail sales to the total retail sales within the United States in that year.
Netflix’s Market Share in the Streaming Industry: According to data from Ampere Analysis as of 2021, Netflix holds around 20% of the total worldwide streaming market share. This market share is calculated by comparing active Netflix subscriptions to the total number of active subscriptions across all streaming services globally.
Frequently Asked Questions about Market Share
What is Market Share?
Market Share refers to the percentage of an industry, or a market’s total sales, that is earned by a particular company over a specified time period. It is calculated by taking the 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 important because it allows businesses to understand their total sales in comparison with the industry they are in. It illustrates a company’s competitiveness and its standing amongst customers in the market. A high market share often signifies high levels of customer loyalty, brand strength, and competitive advantage.
How is Market Share Calculated?
Market Share is calculated by taking the company’s sales over a specific period and dividing it by the total sales of the industry over the same period. This is then multiplied by 100 to get the percentage market share. The formula is: (Company’s Sales / Industry’s Total Sales) x 100 = Market Share%
What is a good Market Share?
A “good” market share varies by industry, but it generally ranges from 20% to 30%. However, having a market share of more than 50% is extremely rare and usually only achievable in unique circumstances, such as in monopoly markets or where there are very few competitors.
How can a company increase its Market Share?
A company can increase its market share by implementing various strategies such as improving product quality, customer service, innovation, or marketing. Understanding customer needs and delivering value better than competitors can also lead to an increase in market share.
Related Entrepreneurship Terms
- Competitive Advantage
- Market Size
- Market Leader
- Market Dominance Strategies
- Market Segmentation
Sources for More Information
- Investopedia: Provides comprehensive articles and definitions on various finance terms, including Market Share.
- Entrepreneur: Offers content on starting, managing, and growing your business, which often includes insightful articles about market share.
- Financial Express: Covers detailed market reports that often involve analysis of market share.
- Forbes: Features expert insights into financial topics, including the importance and calculation of market share.
