Market share is the percentage of sales a company has achieved within a particular industry or market segment over a specific time period. In other words, it’s the total business a company has realized from the total business available. For instance, if the total mobile phones sold the world over during a quarter is 600 million units and if Company A managed to sell 60 million units of them, then its market share is 10 percent. A higher market share is representative of increased sales and/or profits.
To expand market share, companies usually resort to business tactics or measures such as target market widening, price reductions, an increase in marketing budget, etc. Generally, market share details are computed country-wise by the company itself or independent parties such as regulatory bodies and trade groups. Also, market share details could be calculated for the industry, specific products, product category, etc.
Significance of Market Share
Market share information helps a company determine its competitiveness and also the performance of its products, pricing and marketing. It is usually indicative of a company’s strength, customer loyalty and brand penetration. Market share is also an aspect considered by investors. The higher the market share, the likelier is the investor group to invest in the firm or buy its shares.
Other Side of Market Share
Increased market share doesn’t always mean a company or its product/service is the best, or is the most profitable. At times, even firms with average-quality offerings and not the most favorable brand image may be leading the charts, provided it has a strong marketing budget or prices its products aggressively. For example, Apple and Samsung trail companies such as Vivo, Oppo, Xiaomi, etc. in terms of number of phones sold in the Chinese market as the latter set of firms sells a lot more phones at varying price brackets. There are also instances when certain market barriers to entry could let a firm enjoy higher market share.
Why is Increasing Market Share Not Always Ideal?
A higher market share is what companies usually aim for. However, there are also instances when companies try to keep their market share in check as there are certain risks attached to owning a bigger market pie. With increasing market share, companies expose themselves to more competition and antitrust (monopoly prevention) problems, especially if the company is already a market leader.
To maintain market share, companies may have to indulge in a price war that the competition may have waged to regain lost market share. A company that produces to full capacity would have to invest in additional capacity to increase its market share. And if the new production facilities go unused for some reason, it would incur higher production costs. This is the reason why smaller firms are usually happy with their lower market shares.