Market Share

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What Is Market Share?

Market share is often defined as the share of total sales or revenue in a certain industry or market held by a particular company. It is usually shown as a percentage of the aggregate market revenue earned by a specific product or category over a specified period, usually a year.

Market Share Meaning

The company that holds the largest share is the market leader. Market share is an important economic parameter that indicates the total sales potential and the shares of each company selling that particular product in the industry. It also facilitates competitive analysis and increases the choice of products.

  • Market share is the percentage of a company’s share in sales or revenue compared to the industry.
  • It is usually calculated over a specified period and for a particular product or category.
  • The company with the largest chunk of shares is the market leader.
  • Companies employ many measures to increase their share. Some methods include new product development, market pricing strategy, acquiring a competitor in the market, and heavily promoting their products.

Market Share Explained

Market share is one of the many metrics a business seeks to improve in the long run. To have a large share means to have a large, loyal customer base. It also means consistent and high profitability. It speaks for the brand value and reputation in the market. Thus, it functions as a metric and adds new customers to the company.

For companies, keeping an eye on the same can help them understand what is to be done to maintain the largest piece of the market pie. They can develop strategies accordingly and keep tracking their performance. For investors, too, this metric acts as an indicator and helps them in decision-making.

Now, let’s look at the market share formula:

Market Share Formula

Increasing share in the market is one thing, but maintaining it is another, which is why companies place due emphasis on customer acquisition as well as retention. In addition, price, quality, company values and ethics, promotion, publicity, and other such programs contribute to the company’s foothold in the market.

Examples

Check out the following examples to get a better idea:

Example #1

The total value of cars sold in country X in 2022 is $16.8 billion. The revenue of the automobile companies in the country is given below. But first, let us find the share of the market leader.

P – $3.2 billion

Q – $4.1 billion

R – $2.4 billion 

S – $5.6 billion

T – $900 million

Others – $600 million

Since S makes the highest revenue, it is the market leader.

Share of S = 33.33%

Example #2

The United States is currently the market leader in the microchip design market. Companies like Intel, Nvidia, Qualcomm, and others have contributed to the 46% global market share in 2021. However, the share has slipped from 50% in 2015. The main reason is the lack of government support for this sector. The Semiconductor Industry Association and the Boston Consulting Group estimate that the share of US companies in the sector will slide to 36% by the end of this decade if the government fails to offer support.

How To Increase?

Given the advantages of a high market share, businesses often look for ways to increase their foothold in the market. Let’s look at common ways adopted by firms for this:

  1. Innovation – It involves companies introducing new products and technologies that are anticipated by customers or will be easily accepted in the market. It is one of the most popular measures that firms adopt.
  2. Pricing – Another common method companies use is the market pricing strategy. Companies reduce the price of their offerings, usually less than the competitors’ price, to attract more customers.
  3. Promotion – Firms usually follow many methods that promote their products. These methods often aim to retain the existing customer base and acquire new customers. Attractive offers for first-time users and loyalty programs are some examples.
  4. Acquisitions – Acquiring another firm in the same industry (a competitor with a significant share or whose share can increase the acquiring company's share) allows the firm to gain its customers as its own.

Market Share vs Market Penetration

Being similar concepts, these two can be quite confusing at times. So let’s understand them in depth.

Market ShareMarket Penetration
It is the proportion of a particular company’s revenue from the total market/ industry revenue.It refers to how much customers use a product in a particular market.
Determines the market leader.Helps identify and understand the target audience.
Formula: (Total Sales of a company/ Total sales of industry) x 100Formula: (Number of customers/ Market size) x 100
The strategies to increase share in the market are aimed at acquiring more customers in the market.Strategies to increase market penetration often aim to gain the target audience not yet acquired.

In this context, it is necessary to note that market penetration denotes the strategy companies use to increase the share of existing products in an existing market.

Frequently Asked Questions (FAQs)

How much market share does Apple have?

The global market share of the iPhone in the smartphone market as of Q3 2022 is 17.2%.

Why is market share important?

It is an important parameter that helps in determining the market leader. For companies, it helps them understand where they stand and thus develop strategies that help increase their shares in the market. For customers, it facilitates comparisons of companies with a good market reputation. Thus, it gives them a greater choice. It is an important indicator for investors too.

How much market share does Tesla have?

As of December 2021, Tesla held a share of 2.33% in the US market. Within the EV sector, Tesla has a share of 65%. CNBC reports that Tesla is still the dominant electric vehicle (EV) brand in the country, but cheaper EVs are gaining market.