“Market share is king. You cannot afford to replace lost market share” – Frank Perdue.

Do you know what exactly is this market share that everyone keeps talking about? Well, market share can be defined as the proportion of a company’s sales to the total sales of the market in which it competes. Now, the term “market” often refers to the customer base that a business targets, such as the entire FMCG market, the worldwide transportation market, etc.

However, when determining and comparing a company’s market share, the interpretation of “market” changes. It could be a sector of the economy with similar players, a local market, a particular product category, or a group of rivals.

Market Share – in layman’s terms

In layman’s terms, market share refers to the percentage of sales or demand for a particular product or service within a specific market or industry. It is a measure of how well a company is doing relative to its competitors in terms of attracting and retaining customers.

For example, if a company has a market share of 20% in the smartphone market, it means that it is responsible for selling 20% of all smartphones within that market. A company with a larger market share is generally considered to be more successful and competitive within the market.

Market share is an important metric for businesses because it helps them gauge the success of their products or services relative to their competitors and can provide insights into market trends and consumer preferences. It can also be used to form strategic decision-making, such as marketing and pricing strategies.

How to calculate market share?

Market share is calculated by dividing a company’s sales within a specific market by the total sales of all products or services within that market.

For example, if Company A has ₹10 crores in sales within a particular market and the total sales for all products within that market are ₹100 crores, then Company A’s market share is 10%. This can be calculated as follows:

Market share = Company A’s sales/Total market sales
= ₹10 crores/₹100 cores
= 10%

It is important to note that market share can be calculated for different time periods and can be reported on a quarterly or annual basis, depending on the needs of the business.

It is also important to define the specific market or industry that is being considered when calculating market share. For example, a company’s market share may be different within the overall retail market compared to a specific product category, such as electronics or clothing.

Finally, it is important to ensure that the data used to calculate market share is accurate and up to date, as this can impact the reliability of the market share calculation.

Importance of market share

Market share is important for businesses because it can indicate the success or competitiveness of their products or services within a specific market. A higher market share can indicate that a company’s products or services are popular among consumers and that the company has a strong position in the market. Having a large market share can also bring several benefits to a company.

Benefits of larger market share

A larger market share can bring several benefits to a company, including:

  • Increased bargaining power: A company with a large market share may have more leverage in negotiations with suppliers, distributors, and other partners.
  • Greater economies of scale: A larger market share can allow a company to spread fixed costs over a larger volume of sales, potentially leading to lower production costs and higher profits.
  • Higher brand recognition: A company with a large market share may have greater brand recognition and loyalty among consumers, which can help to drive sales and increase market share further.
  • Greater access to financing: Companies with a strong market share may be viewed as less risky by investors and lenders, which can make it easier for them to access financing.
  • Ability to influence market prices: A company with a large market share may be able to influence prices within the market, either through its own pricing decisions or through negotiations with suppliers and distributors.
  • Potential to drive out competitors: A large market share can make it difficult for competitors to enter or remain in the market, potentially leading to fewer competitors and less intense competition.

It is important to note, however, that a large market share is not always a guarantee of success, and businesses should consider a range of metrics to fully understand their performance and position in the market.

How to increase the market share?

There are several strategies that businesses can use to increase their market share, including:

  • Improving the quality of products or services: Offering high-quality products or services that meet the needs and preferences of consumers can help a business attract and retain customers, potentially leading to an increase in market share.
  • Innovating and introducing new products or services: Developing new products or services that meet emerging consumer needs or address unmet needs in the market can help a business attract new customers and increase its market share.
  • Differentiating products or services: Differentiating products or services from those of competitors can help a business stand out in the market and appeal to specific segments of consumers, potentially leading to an increase in market share.
  • Expanding distribution channels: Increasing the number of outlets where products or services are sold, such as through online channels or partnerships with other retailers, can help a business reach more customers and increase its market share.
  • Investing in marketing and advertising: Promoting products or services through marketing and advertising campaigns can help a business increase brand awareness and attract new customers, potentially leading to an increase in market share.
  • Strengthening customer relationship: Being responsive to consumer feedback, offering standardised products that meet their demands, and fostering strong customer relationships can help a business to grow its customer base and increase its market share.

Final Words

It might seem that a company’s primary objective is to gain a sizable market share, but this is untrue. Companies having a large market share do have a lot of advantages, but there are disadvantages as well. Since it requires a significant time, effort, and commitment, maintaining this position is quite challenging. Additionally, any changes in the business environment could have a negative impact on the company. Therefore, most businesses, rather than setting unreasonable targets, choose to determine a particular level of market share which is feasible for them, considering the size of the firm, the long-term goals, etc., and then map out the most appropriate approach to get there.

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