Market share

Definition

Market share refers to the portion or percentage of total sales or revenue that a particular company or product captures within a specific industry or market.

What is market share?

Market share is a key performance indicator used to assess a company’s competitive position and its relative strength in relation to other players in the market. 

The formula for calculating market share is:

Market Share =  (company’s sales or revenue / total market sales or revenue) x 100

This formula provides a percentage that represents the company’s share of the total market.

Market share is a crucial metric for assessing a company’s competitive position within its industry. A higher market share indicates a stronger presence and influence in the market. It allows companies to compare their performance with the competitors. A company with a higher market share may be seen as the industry leader.

A high market share can be an indication of brand strength and customer loyalty. Customers may perceive a company with a large market share as more trustworthy and reliable.

Types of market share:

1. Overall market share: This refers to the company’s share of the entire market, encompassing all competitors and products within a specific industry.
2. Segment market share: Companies can also analyse their market share within specific segments or subcategories of the market. 
3. Geographic market share: Companies may evaluate their market share within specific geographic regions or countries, especially if they operate in multiple markets.

A high market share does not necessarily guarantee profitability. It’s possible for a company with a large market share to still be unprofitable if its costs are too high. Some companies may operate in niche markets where they have a small market share but a strong and profitable presence.

Example of market share

In the beverage industry, Company XYZ sells a popular brand of cola. There are several other competitors in the market, including Company ABC and Company DEF.

Let’s say that in a given year, total cola sales in the market amount to 100 million units. Of these, Company XYZ sells 40 million units.

To calculate market share, you can use the formula:

Market share of Company XYZ = (Company XYZ sales / Total market sales) × 100

Market share of Company XYZ = (40 million units / 100 million units) × 100 = 40%

In this example, Company XYZ has a market share of 40%. This means that out of all the cola sold in the market, Company XYZ’s brand accounts for 40% of the total sales volume.