What is market share, and how to calculate it?
Market share is a well-known term in the business world and a crucial indicator for marketing. Have you ever heard of that term? Whether yes or no, in this post, you will:
- Understand what “market share” is
- Learn the relationship of this term with marketing
- Understand how it is calculated
- Receive tips on how to increase market share
What is market share?
Market share is the percentage of participation of a company in the market. Market share analysis aims to understand how a company stands out over another when compared by a common denominator. The study can be related to different types of participation, such as:
- The number of units sold
- Monetary participation within the active market
How to calculate market share
Despite having several ways of analyzing market share, its formula is always based on the idea of a percentage comparison between your company versus the market it is in. Before starting your analysis, you should:
- Have a clear idea of what comparison you want to analyze.
- Study the market you are in
- Master your company’s internal data
For our examples, let’s consider a cosmetics company. We could make the market share considering “perfumes.” You could do a market share focused on your company compared to all the others that come with perfumes or the market share of 1 specific brand. To continue, let’s think of a particular fragrance called “XYZ.”
The number of units sold
This analysis allows us to understand its market penetration concerning all perfume units sold, regardless of brand. The formula is simple:
XYZ Units Sold / Total Market Perfume Units Sold
Example:
XYZ units sold: 5,000
Total perfume sold on the market: 100,000
Market share of XYZ units: 5%
Monetary participation
This analysis allows you to understand, concerning your competition (different perfume brands), what % of the market you dominate to the total value that perfume consumers spend in a given time. The formula goes like this:
Total sold ($) of XYZ / Total spent by perfume consumers.
Example:
XYZ units sold: 5,000
Unit value: 160$
Total sold (4) from XYZ: 5,000 x 160 = 800,000
Total perfume sold on the market ($): 250,000,000
Market share of XYZ units: 0.032%
The first example resulting in a 5% market share and the second example resulting in 0.032% are correct, even though the percentage is different! This happens because the analyzes made were considering different points of comparison. In the first situation, we compare only units; in the second, we consider the sales value of these units x the total sales volume ($) of the market.
If the 2 market shares are correct, which one to use?
It depends a lot on the analysis objective and relies on your market analysis. Who usually performs the market analysis, sets objectives, and calculates the total value is the marketing team!
Importance of market share for marketing
The main marketing objectives are to increase brand awareness and support the sales process. Market share is one of the leading indicators to help marketers understand the company’s position in the market.
From the market share analysis, it is possible to identify:
- A window for price adjustment (either up or down).
- New business opportunities.
- Weaknesses of the company under study.
- Competitive advantages within the market.
These analyzes are so relevant that they should be part of any company’s strategic planning and serve as a basis for establishing business objectives and goals.
How to increase market share?
We already understand that mastering market share analyzes is very important, but the objective of any analysis is to provide data to define improvement actions. Here are some tips to increase your market share:
- Customer relationship – the best marketing is still referral. Taking care of your current customers is a great way to attract new customers in addition to loyalty, ensuring new sales in the future.
- Invest in marketing campaigns – increasing the reach of your product via marketing campaigns is a strategy to increase sales!
- Invest in innovation – do different, think different. Understanding your target audience and offering something innovative can be an option to win that little piece of the market that makes a difference.
- Review your price – you may need an adjustment up or down, depending on your market opportunities analyzed after studying the market share.
- Acquire a competitor – this step might not be possible for many companies, but it is also a good option for increasing market share. Acquiring competitors can bring innovation, benefit internal processes, and even impact the product price – even though the market share of your acquisition turns out to be yours!
Suppose you are interested in more ideas for increasing market share. In that case, I recommend this article from Harvard Business Review, Strategies for High-Market Share companies, but I also encourage you to start a discussion on this page!
Looking forward to hearing your thoughts about market share!