Market Share: A Driving Factor That Keeps Marketers on Their Toes

What Means a Market Share?

A company's market share may be defined as the percentage of an industry's total revenues that are produced by that specific business. To get a company's percentage of the market, start by taking the company's sales for the period and dividing that number by the industry's total sales for the same time period. This statistic is used to provide a high-level understanding of the size of a firm with respect to both the market in which it operates and the businesses in which it competes. The firm that has the biggest market share is often considered to be the market leader in a certain industry.

Why Is It Important to Market Share?

The market share of an organization is a valuable indicator because it provides insights that go far beyond just indicating the firm's relative size within the market it is operating in. When you are aware of your obligations in the market, you may determine not only how successful your company is in comparison to its rivals, but also how successful you’re marketing, advertising, and efforts to produce new products have been.

The importance of a product's market share is a measurement of the preference that customers have for a product over other items that are comparable in nature. A larger percentage of the market share often equates to more revenues, less effort required to sell more, and a significant obstacle to the entrance of new rivals. Due to the fact that market share is a vital measure of market competitiveness, it helps executives to estimate overall market growth or decrease, recognize major patterns in consumer behavior, and understand both their market potential and their market opportunity. Companies operating in mature or cyclical sectors, which have moderate growth rates, are more susceptible to the effects of shifts in market share on their overall performance. Changes in market share, on the other hand, have less of an effect on businesses operating in growing sectors.

Understanding and assessing a company's market share is essential for every business that wants to expand its operations or increase its profits. Fluctuations are often indicative of a company's competitive edge, which is information that may be incredibly essential for investors and for the success of a stock's price. This is the fundamental argument that may be made in support of the relevance of market share. This is the primary justification for the significance of market share.

Why Market Share Is Profitable?

At least three explanations may be given for why having a market share might be advantageous. These include:

Scale economies consist of: The most apparent justification for the high rate of return that large-share enterprises receive is the reality that these organizations have obtained economies of scale in the areas of procurement, production, promotion, and other elements of their costs. A company that has a 40 percent share of a certain market is basically twice as large as one that has a 20 percent share of the same market, and this will achieve, to a far higher degree, more efficient ways of operating within such a particular sort of technology.

Market power: There is a widespread consensus among economists, particularly among those who specialize in the field of antitrust, that economies of scale play a very little role in the majority of sectors. These economists contend that if large-scale enterprises generate bigger profits than their smaller rivals, it is a function of their stronger market power: their size lets them negotiate more successfully, "administer" pricing, and, in the end, achieve much higher prices for a given product. In other words, their larger market power allows them to charge substantially higher prices for the product.

The level of quality in management: Both market share and return on investment (ROI) reflect a single underlying component, which may be thought of as the quality of management. This is the simplest answer for the link between market share and profitability. Good managers (including, possibly, fortunate ones!) are effective in gaining large shares of their respective markets; they are also skilled in managing expenses, getting the greatest output from personnel, and a variety of other managerial responsibilities. In addition, once a company has achieved a leadership position, maybe by pioneering a new industry, it is far simpler for that company to maintain its lead than it is for other companies to catch up to it.

What Are the Different Types of Market Share?

Value: Market share in terms of value is calculated by dividing a company's total sales by the sum of all sales in the relevant segment.

Volume: The actual number of units that are sold by a firm relative to the overall number of units that are sold in the market is referred to as the company's volume.

In most cases, the equation for value-volume market share does not follow a linear progression. It is possible for a unit to have a high value but a low number, which indicates that the unit's market share in terms of value may be high but the volume share may be low.

How Market Share Is Useful for the Driving Factor That Keeps Marketers on Their Toes?

A product's market share may be thought of as a measurement of the customers' preference for it over other items that are comparable. A larger percentage of the market share often equates to more revenues, less effort required to sell more, and a significant obstacle to the entrance of new rivals. Having a larger portion of the market also implies that if the market grows, the market leader will benefit more than the other competitors. The expense and effort required to keep one's market share at one hundred percent in the face of nimbler, more local, or more aggressive smaller rivals may be quite significant and ultimately fatal. The majority of businesses choose a target market share beyond which the expense of obtaining more market share will be greater than the incremental profit from that gain. The constant fluctuation of market share ensures that marketers are always on their toes.