Market share is the portion or percentage of sales of a particular
product or service in a given region that are controlled by a company. If, for
example, there are 100 widgets sold in a country and company A sells 43 of
them, then company A has a 43% market share. You can also calculate market share using revenue instead of
units sold. If company A sold widgets for a total cost of $860 and the people
in the country spend a total of $2,000 on the same widgets, then the market share is $860/$2,000 or 43%.
The two different methods of calculating market share won't always provide the
same answer, because different companies may charge slightly different prices
for the same type of widget.
Market share is used by businesses to
determine their competitive strength in a sector as compared to other companies
in the same sector. It also allows you to accurately assess your performance
from year to year. If you only use sales to measure your performance, then you
don't take into account the market conditions that may have improved or
decreased your sales. Your sales may have gone up because of increased
popularity of your type of widget, or they may have gone down because of a drought or recession. Since
those factors are beyond your control, they don't give you meaningful
information about how you are actually doing as a company in terms of improving
your business. By measuring market share, you can see if you are doing better
or worse compared to other companies that are facing the same challenges and
opportunities that you are.
There are four basic ways you can
improve your market share. You can improve your product so that it is better
than your competitors or you can change the price or offer special incentives
for buyers, such as discounts or sales. Alternatively, you can find new methods
to distribute your product so people can buy it in more places. Finally, you
can advertise and promote your product. Using these techniques in any
combination may improve market share.
Increased market share is not always the best solution for businesses. It
might not be profitable if it is associated with expensive advertising or a big
price decrease. A company may not be able to meet the demand of an increased market share without huge investments
in new equipment and employees. In some cases it can be to a company's
advantage to decrease market share, if the lower costs of lower market share can improve profitability. Managing market share, therefore, is a very important aspect of managing a business.