Market share

What is a market share?

The market share mentioned above is the percentage of total sales in an industry generated by a particular company. The market share is calculated by taking the company's sales over the period and dividing it by the total number of sales in the industry over the same period. The formula thus looks like this:

Number of sales over the period / Total number of sales in the sector over the same period = Market share

This measurement is used to give a general idea of the size of a company in relation to the market and competitors. The market leader in an industry is the company with the largest market share.

Calculation of market share

To calculate a company's market share, you first need to determine a time period to study. This can be a quarter, a year or several years.

Then calculate the company's total sales for that period. Then calculate the total number of sales in the company's industry. Finally, divide the company's total revenue by the industry's total sales.

For example, if a company sold socks worth DKK 10 million last year, and the total volume of socks sold was DKK 20 million. Then the company's market share for socks would be 50%.

The calculation of market shares is usually performed for specific countries, such as a market share for Denmark only or for Germany only. This is done because it helps to give an indication of how well placed one's company is compared to competitors in the same industry.

Why is Market Share important?

Market share is important because it gives an indication of how competitive your business is. When a company upgrades its market share, this can potentially create better profits. In the financial market, market share can have an effect on share prices, especially in cyclical industries where competition is fierce. Thus, market share can be either an advantage or a disadvantage depending on the segment.

The effect of market share

Market share can have vital importance and impact on how companies in a particular industry perform. However, it is mainly low growth industries where market share has the greatest impact. In industries where growth is consistently high, firms will not be affected by market share if market share were to fall. This is because industry sales are at such a high rate that even if firms were to experience falling sales, they would still experience a positive rate even if they lost some market share.

Some of the benefits a company will experience from market share are:

• More sales. A higher market share helps to secure more sales for your business. The better known your brand is, the more potential customers will seek out your brand and buy your products.
• Larger customer base. A higher market share also helps to expand a company's customer base.

Companies that are part of the cyclical industry, on the other hand, will be strongly affected by market share. Here the economic factor is important for the survival of the company.

Increase your market share

A company can increase its market share by offering its customers innovative technology, strengthening customer loyalty, hiring talented employees and acquiring competitors.

New technology

Your company can increase its market share by being innovative. If your company can bring a new technology to market that your competitors have not yet offered to customers, consumers will buy the technology from you. Many of these consumers become loyal customers, increasing your market share and reducing the market share of the company from which they switched.

Customer loyalty

To protect your existing market share, it is important to strengthen your customer relationships so that customers are less likely to buy from your competitor just because you have an offer. You can also increase your market share using the same simple tactic, as satisfied customers often talk about their positive experience to friends and family, who then become new customers. Gaining market share through publicity increases a business's revenue without increasing their marketing spend.

Talented employees

The companies that are successful in acquiring the most talented and dedicated employees also typically have the highest market share in the industry. Hiring the best people reduces the cost of training and education, allowing the company to allocate more resources to focus on their core competencies. Offering good salaries and other benefits is a deliberate way to attract the best employees.

Acquisitions

Finally, one of the surest ways to increase your company's market share is to acquire a competitor. It reduces the number of companies fighting for a piece of the same pie.

Frequently asked questions about market share