What Is Meant by Market Share? A Complete and Detailed Guide

Any one who has an interest in business, marketing or investment, must understand what is meant by market share. It is among the most common measures that are taken to measure the performance of a company against the performance of its competitors. Market share gives you an excellent understanding of who is dominating in the market, and who is having a hard time making it no matter how global or local the brand is.

Not only will you learn the definition of market share, but also get to know how it works, why it is important, and how it relates to such concepts as what is meant by volume in share market and what is meant by share market.

Market share describes the market portion of the total sales or revenue that an organization obtains in a particular market or industry during a certain time. It effectively informs you how many percent of the total demand a company can meet in comparison with all other competitors as a group.

In simple terms, the market is considered a big pie. Each company is allowed a portion of that pie depending on its sells. The bigger the slice, the higher the market share.

The general equation to compute market share is:

Market Share = Company Sales/Total Market Sales x100.

To illustrate, when the overall market sales of a product are 1 million and one company makes 250,000 sales, the company will have a market share of 25% of the market. This translates to having one-quarter of the whole market.

Market share is not an imaginary notion, it is an actual representation of the performance of a business. Firms engage in constant competition to gain more share since it tends to result in increased visibility, more profits and customer loyalty.

Take the smart phone industry. There are several brands that are competing with each other, and only a few are in control of the market. A more market share usually comes with a better brand awareness and a greater customer base. This can create a loop wherein the increased number of customers results to greater sales and this results to greater sales.

Market share is important in giving answers to some important questions in terms of practicality. Who is the leader in the market? What is the fastest growing company? Which brand is becoming less relevant? Such understandings can be useful to businesses, as well as investors and analysts.

The market share can be quantified in various forms based on the aim of the analysis. Value market share and volume market share are the two most common ones.

Value market share is determined by the amount of revenue earned by a firm in relation to the amount of revenue the market earns. This kind of measurement is concerned with the financial worth of sales and not the amount of units sold.

As an example, a luxury brand might sell less but earn more as a result of high prices. Consequently, it might be characterized by a high value market share despite relatively low volume.

Volume market share is founded on the quantity of units sold, but not the amount of revenue earned. This is directly associated with what is meant by volume in share market where volume is the amount of transactions or units exchanged.

Volume market share is used in product markets to determine the number of items sold by a company relative to the number of units sold in the market. Volume in financial markets is the amount of shares that are transacted in a given period.

It is important to know the distinction between value and volume. A business can also be a volume leader by offering high volume at reduced prices, and a value leader by offering higher price but low volume products.

Another misconception that beginners have is the distinction between market share and market size. Although these concepts relate, they fulfill various purposes.

Market size is a term that indicates the aggregate amount of demand or aggregate sales of a given market. It is the aggregate potential of all firms which operate in that market.

Market share, however, reflects the share of that total market that a particular company has.

To take an example, when the market size of an industry is 5 billion and a company makes 1 billion in revenue, its market share is 20%. Here, market size will inform you of the size of the opportunity and market share will inform you of the portion of that opportunity that the company has already achieved.

Market share is a decisive figure as it gives information on the competitive position, growth opportunities, and general strength of a business in its respective market.

Competitive Position

Increased market share normally shows that a firm is doing well compared with other firms. It implies that its products or services are more desired by the customers and this makes it more competitive in the market.

Profitability and Efficiency

Economies of scale are usually enjoyed by companies with a high market share. This implies that they are able to manufacture at a lower unit cost since there is increased production. Consequently, they would be able to raise the profit margins or provide competitive prices.

Investor Confidence

In investment terms, market share is a critical measure of stability and growth in the long term. Firms that keep on gaining market share are considered to be powerful and secure investments.

It is easy to compute the market share, although it needs proper data. The first is, to find out the total sales of the company in a given time. Then, you should locate the overall sales of the whole market in the same period.

When you have both values, then you use the formula:

Market Share = (Company Sales 0/ Total Market Sales) x 100.

As an illustration, a company makes a revenue of 800,000 and the market revenue is 4 million, then the market share of the company would be 20%.

Depending on the kind of analysis, this can be calculated by revenue (value) or units sold (volume).

To get the full picture regarding the bigger financial picture, we should investigate what is meant by share market.

The stock market or share market is a place where companies sell to the people the shares in their ownership. Investors are also able to purchase and sell such shares hence enabling them to contribute to the growth and profitability of the company.

Although the market share is used to gauge the performance of a company in its industry, the share market is used to determine the perceptions of investors regarding the performance of a company.

Market share has an indirect, but significant role in share market. Investors tend to perceive companies positively in terms of increasing market share since this implies that they are growing and competitive.

When a firm continuously grows its market share, then it is an indicator that it is doing better than the competitors. This may result in a boost of investor confidence which may cause the stock price of the company to go up.

Conversely, the dropping market share may also cast doubt on the future of the business, which may hurt its stock price.

A large market share has a number of advantages but there are a number of challenges that have to be dealt with as well.

A firm that has a high market share is likely to have a high brand recognition and consumer loyalty. This can facilitate retaining existing customers and attracting new customers. Moreover, bigger firms are able to bargain better prices with their suppliers as well as minimizing expenses due to the economies of scale.

Although this has its merits, it may be difficult to maintain a large market share. Firms can experience a stiff competition with new entrants or other competitors attempting to gain a bigger market share. It is also under a continual pressure to innovate and uphold quality which may drive up the cost of operation.

There are numerous approaches that companies employ to increase their market share in the long run. Competitive pricing is one of these whereby companies reduce prices in order to get more customers. The other action plan is to invest a lot in marketing and advertisement to create brand awareness.

Innovation is also very important. When companies present new and better products, they can attract the attention of the customers and have an advantage over the other companies. In other instances, acquisition and mergers enable businesses to gain market share rapidly, as they are able to enter the market faster.

It is possible to observe market share in almost every industry. In technology, some brands are taking up the global sales because they have strong product ecosystem, brand loyalty. In food and beverage sector, the major firms have a high market share, which is achieved by having a large distribution network and reliability in the quality of its products.

Small businesses can also attain high market share in their given area even at local level, through developing good relations with the customers and delivery of reliable services.

Common Mistakes Beginners Make

Novices are confused with market share and its interpretation. Assuming that an increase in market share implies an increase in profits is one such error. Although this is usually the case, it is not a surety as profitability is determined by several factors including costs and pricing policies.

The other error is that market share should not be confused with market size. These are the various measures and it is important to know both of them in order to analyze them. Also, other individuals do not make the difference between what is valuable and what is volume and this may draw a wrong conclusion about the performance of a company.

Conclusion

At this point, you must have understood what is meant by market share and the reason as to why it is such a significant concept in the field of business and finance. A market share not only indicates the present market position of a firm but also gives a good idea of the potential of the firm in the future.

Using it together with such concepts as what is meant by volume in share market and what is meant by share market, makes it a potent tool in the analysis of industries, evaluation of companies and making informed decisions.

FAQs

What is meant by market share in simple words?

Market share is a percentage of the total sales in a market that are attributed to a given company.

What is a good market share percentage?

Market share is a good percentage depending on the industry, but usually, the higher percentage, the better the position in competition.

What is the difference between market share and market size?

Market size is the overall demand within a market whereas market share indicates the amount of demand that a company has already attained.

What is meant by volume in share market?

Volume is the total units sold or shares traded in a given time period.

What is meant by share market?

Share market is a market where investors can sell and buy shares of the companies, which are an ownership of the companies.

Table of Contents