Market Share: Determining the Performance of Business Firm

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

The term ‘market share’ has created quite a hype among businesses of various niches. From a small-scale business to a giant company like Apple, market share is something businessmen never ignore.

In fact, market share is crucial if you want to establish your position as a businessman in the market. It determines whether you have a dominant or weak position in the market. This blog has everything that you should know about market share.

Market Share: A Detailed Analysis

Market share is the total sales percentage earned by a company over a specified period of time. It is calculated by taking the company’s sales during that period and dividing it by the total sales of the industry of the same period. The market share gives a brief idea of where the company stands in the market amidst its competitors.

The market share can also be expressed as a percentage of the total number of products sold in the market. You can compare the percentage with that of your competitors and identify your position in the market.

The main purpose of market share is to calculate a company’s competitiveness. You can also use it as a measure to follow the current trends of your industry in regards to pricing and marketing.

Still confused? Check out this simple example to understand the concept of market share even better.

Consider a situation in which the consumers buy 100 soaps. Out of 100, 40 soaps are from one company named X. Then, company X holds a 40% market share.

Now, market share can be of different types. Let’s check out all the variations of market shares in details.

Easy & Simple Techniques to Calculate Market Share of a Firm

As mentioned earlier, a business’s market share is the number of sales as a percentage of an industry’s total revenues. You can calculate the market share of a company by dividing the company’s total sales or revenues by the industry’s total sales over a fiscal period. This measure is used to get a general idea of the company’s size as compared to the industry.

The high and low market share determines the relative competitiveness of a market’s products and services. A higher market share usually indicates a greater profit in the industry. But, it isn’t the case always. A higher market share can also determine a great deal of risk for the companies to thrive in the market. Check out the easiest technique of calculating the market share of a company and know whether it’s profitable or risky.

Steps To Deduce A Company’s Market Share

• Determine the time that you want to examine the share for. It can be anything from a fiscal quarter to multiple years.
• Next, calculate the total sales of that company during that period
• Find out the overall sales of the company’s industry
• Divide the total revenues of the company by its industry’s total sales

As an investor, you can calculate the market share from other independent sources, some of which include regulatory bodies and trade groups.

Consider this example below:

Say you have been asked to calculate a toy manufacturer’s market share during a period of one fiscal year. Total revenues obtained by the manufacturer is $20 million. The industry of toy manufacturing had revenues of $200 million over that same period.

To calculate the market share of the toy manufacturer, divide $20 million by $200 million. The market share would be 10% for the company.

Tips to compare the market share in an industry:

Comparing the market share with the overall industry is essential to understand the company’s position in the market. You can use the market share during multiple periods to see how the company fares against its competitors. You can also understand if your company is growing or degrading in terms of productivity.

Consider the example given below:

Say another toy manufacturing toy-manufacturing company Y has total revenues of $40 million.  By applying the techniques mentioned above, you can find that the company has a 20% market share of the industry. Thus, you can see that Y beats X in terms of greater market share in the industry.

By comparing the market share of specific companies, one can always look forward to applying strategies to expand the market. The companies can appeal to larger demographics, using advertisements or lowering prices. Considering the same example as mentioned above, X can implement the right strategies to grow the total size of the market.

Impact of Market Share Distribution on Industry Performance

Gains or losses in the market share can have essential effects on a company’s growth in the market. In fact, as per Harvard Business Reviews, market share is considered as one of the best parameters to calculate a business’s profitability. According to the central dogma, companies with high market shares make more profit than the ones with smaller market share. The impact of market share on a company also depends on the industry conditions. There are primarily two types of industries which is affected by the market share distribution.

First, let’s talk about the growth industries. In these industries, changes in market share have less impact. As the name suggests, these industries are still in terms of growing sales despite losing market share. These industries are more affected by sales growth and margins than other factors.

Another nature of the industry is the cyclic industry where the competition for market share is pretty brutal. These industries are affected by the variance of sales, margins and earnings. Owing to the high rate of competition, operations tend to run at maximum efficiency and margins tend to be low.

Companies belonging to the cyclic industries tend to lose money on services temporarily to persuade competitors to declare bankruptcy. They increase the prices the moment they gain greater market share. The strategy isn’t perfect as it can be fruitful or ruin a company for good.

Market share is a broad topic and is quite an essential one for marketing and economics students. As it is a broad topic, students can have plenty of problems covering all the topics in details. However, if you look forward to becoming an entrepreneur or businessman, market share is something you should know. Check out the reasons for which students face problems while working on their market share assignments.

Why Students Find It Difficult To Write An Assignment On Market Share?

Whether you are a student of finance, economics or marketing, you should be familiar with the basic concepts of market share. Universities all around the world consider market share as a crucial topic for students to help them enjoy a bright career ahead. You may be asked to write an assignment on this topic or prepare your coursework on the same. On top of it, you may have exams on the concepts of market share.

The most common concerns of students while writing their assignments on market share are:

• Lack of time

Many students are overwhelmed due to the pressure of writing multiple assignments, coursework and exams. They are unable to invest enough time in writing a paper on market share.

• No research material

As market share is a vast topic, you may find it difficult to gather relevant details on market share. You need to collect unique, rare and proper information that would add value and substance to your paper.

• Improper structure

You can find it quite challenging to write your assignment on market share without the proper structure. Several students are unable to formulate a structure and they start writing the assignment right away. This leads to a messy format which fails to grab the interest of your readers.

Writing an assignment on market share is not a walk in the park. You have to study hard, research thoroughly and invest enough time to compose a paper that fetches the best grades. Prepare an outline before writing the assignment. You can use the details in the right structure so that it makes sense to the readers.

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