MARKET SHARE: TYPES, INDICATORS AND EXAMPLES - ECONOMY - 2025

The market share is the percentage that has gained a particular company with respect to the total sales in an industry or market for a period of time. It is the share of a company in total sales relative to the market or industry in which it operates.

For example, if a company sells $ 100 million worth of tractors per year nationwide, and the total number of tractors sold in the country is $ 200 million, the company's market share in tractors in the country would be 50%.

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Share can be a percentage measure of total sales in a city, region, country or continent. It can also be a percentage of the global market.

Variations

Investors and analysts carefully monitor increases and decreases in market share, as this can be a sign of the relative competitiveness of the company's products or services.

As the total market for a product grows, a company that maintains its market share will be growing revenue at the same rate as the total market.

A company that is increasing its market share will increase its revenue faster than its competitors.

Increases in market share can allow a company to achieve greater scale in its operations and improve its profitability.

A company may try to expand its market share, either by lowering prices, using advertising, or introducing new or different products. Furthermore, you can also increase the size of your market by attracting other audiences.

Types

There are several types of market share. Market shares can be in value or volume. Market share in value is based on a company's total share of total segment sales.

Volume refers to the actual number of units that a company sells with respect to the total number of units sold in the market.

The equation for market share in value or volume is usually not entirely linear. A unit can have a high monetary value and low quantities. This means that the market share in value can be high, but the share in volume can be low.

In industries such as consumer goods, where products are low-value, high-volume, and gift-intensive, comparing market share by value is the norm.

Market share in units

They are the units sold by a particular company as a percentage of total market sales, measured in the same units.

Market share in units (%) = 100 * Sales in units / Total market sales in units.

This formula can be rearranged to generate sales in units or total market sales in units of the other two variables, as illustrated below:

Sales in units = Market share in units (%) * Total market sales in units / 100

Total Market Sales in Units = 100 * Sales in Units / Market Share in Units (%).

Market share in revenue

Market share in revenue differs from market share in units in that it reflects the prices at which products are sold.

A simple way to calculate relative price is by dividing the market share in revenue by the market share in units.

Market share in revenue (%) = 100 * Sales revenue / Total market revenue in sales.

As with market share in units, the equation for market share in revenue can be rearranged to calculate sales revenue or total market revenue in sales from the other two variables.

Indicators

Market share is a key indicator of market competitiveness. That is, it shows how well a company is doing against its competitors in the market.

This indicator helps managers assess not only the overall growth or decline of the market, but also the trend of customer selection among competitors.

The growth in sales as a result of the total growth of the market is less costly and more profitable than the growth obtained by taking participation of the competitors.

On the contrary, losing market share can indicate serious problems, which will require strategic adjustments.

Companies seek to have a high market share, as it is generally related to having high profits. However, having a very high market share also implies higher risk.

This generates aggressive competition, even leading to antitrust action. Consequently, companies seek to keep their market share lower than desired, to avoid being attacked by competition and strict regulations.

Market share can be broken down into three indicators. These three underlying indicators are used to help identify opportunities for market share growth

Penetration share

Penetration indicates the number of people who purchased a product from the company, relative to the products in the category being measured.

Penetration Share (%) =% Brand Penetration /% Market Penetration.

Participated

Indicates how much customers spend with the company, compared to others in the same category.

Portfolio share (%) = Spent with the company / Total spent in the category.

Heavy usage indicator

It shows how intensely customers use our products compared to other companies in the same category. It can be taken in units or in monetary value.

Heavy usage indicator = Average purchases in the category by our customers / Average purchases in the category by the entire market.

Market share indicator

Market share (%) = Penetration share * Portfolio share * Indicator of intense use.

How to calculate market share?

Market share is the proportion of sales in an entire market that is taken by a specific organization. It is represented as a percentage of the market.

To calculate market share, the sales of a company during a period of time are divided by the sales of the entire market for that same period indicated. The formula is:

Market Share = Company Sales / Total Market Sales

This indicator is used to give a general idea of ​​the size of a company in relation to its market and its competitors.

Investors can get the market share data from various independent sources such as trade groups, regulatory bodies. Also frequently from the company itself. However, some industries are more difficult to measure accurately than others.

Methods to calculate it

Although market share is probably the most important marketing indicator, there is no single method to calculate it.

This is unfortunate, as different methods can generate different market share estimates at any given time. In the same way, they also generate very divergent trends from each other.

The reason for these disparities is due to variations in the lens through which market share is viewed: units rather than revenue, in which channel measurements are taken (manufacturer shipments vs. consumer purchases), definition of the market (scope of the competitive universe), and errors in measurement.

Examples

For example, suppose XYZ Electronics sold $ 5 million worth of televisions in the United States, in a total market where $ 100 million worth of televisions were sold during the same period.

XYZ Electronics' market share is 5%. Companies use this number to assess their respective strength in the market with their target buyers.

Market share can be divided into very specific categories so that the company knows where it has a competitive advantage. This television example could be divided into television sales segments, such as plasma, LED or 3D televisions.

It could also be broken down into geographic regions. A company that has a national 5% market share in an industry can feel very strong if it has a single location in a small state.

A 5% market share might not be a great number, if that company has 50 locations in each of the 50 states.

Apple in the Chinese market

All multinational companies measure their success based on their participation in specific markets. China has been an important market for companies. This country continues to be a rapidly growing market for many products.

For example, Apple Inc. uses its market share numbers in China as a key performance indicator for the growth of its business.

Apple has a huge market share in the smartphone industry. However, it has a small market share in the personal computing industry.

Apple's market share for the Chinese smartphone market fell from 13.6% at the end of 2015 to 9.6% for 2016. This happened despite the overall Chinese smartphone market growing 9% in 2016.

Apple's sales fell in China that year because it was unable to launch a new iPhone. It then lost more market share because a number of mid-range smartphones were launched by Chinese competitors OPPO and Vivo.

References

1. Investopedia (2018). Market Share. Taken from: investopedia.com.
2. The Economic Times (2018). Definition of 'Market Share'. Taken from: economictimes.indiatimes.com.
3. Wikipedia, the free encyclopedia (2018). Market share. Taken from: en.wikipedia.org.
4. Techtarget (2018). Market share. Taken from: whatis.techtarget.com.
5. Kimberlee Leonard (2018). What Is Market Share? Small Business-Chron. Taken from: smallbusiness.chron.com.
6. My Accounting Course (2018). What is Market Share? Taken from: myaccountingcourse.com.
7. Economy Watch (2018). What is Market Share? Market Share Metrics, Market Share Formula. Taken from: economywatch.com.