Growing up, I used to play "grocery store" with my sister. We'd go into our pantry, take out all the food, and set up a grocery store in our living room. I would typically "buy" goldfish.
You might be thinking, "What does this have to do with market share?"
Well, let's say that I bought 10 bags of goldfish from various "companies" that my sister, mom, and dad owned. If three of those bags were my sister's goldfish, that would mean that she had a 30% market share of my goldfish.
Put simply, that is market share. But how does that impact marketers?
As marketers, it's important to understand market share so you know how your company ranks against competitors and can develop new marketing strategies to reach more potential customers. In this post, we’ll outline what market share is, how to calculate it, give real life examples, and explain how you can increase yours.
What is market share?
Market share is the percentage of an industry's sales that a particular company owns. Essentially, it is the share of total industry revenue that your business has generated from selling your products and services. Businesses with larger market shares are industry leaders and competition for smaller companies.
You can think of it like this: if consumers buy 100 t-shirts and 70 of them are from company A, 25 from company B, and 5 are from company C, Company A owns a market share of 70% and is the leading industry competitor.
Market share is typically calculated for a specific time period, like yearly or quarterly sales, and is sometimes separated by region.
How to Calculate Market Share
Since you likely already track sales data, calculating your market share is a straightforward process. Simply find your business’s total sales revenue for your preferred time period and divide that number by your industry’s total revenue during the same period. Once you have this result, multiply the number by 100 to generate your market share percentage.
Market Share Formula
Calculating your market share will give you an overall understanding of your position in the industry, but it’s also helpful to understand how you measure up to your direct competitors.
Relative Market Share
Relative market share is a way to compare your performance to industry leaders.
Rather than using total industry revenue, you’re dividing your market share by your top industry competitors market share, and multiplying the result by 100. The result will show you the portion of the market you own in relation to your largest competitor. The image below shows the relative market share formula.
Relative Market Share Formula
Market Share Examples
It may be easier to understand market share with real-life examples, so we’ll go over some below for businesses you may already be familiar with.
Nike Market Share
Nike is part of the athletic footwear and apparel industry selling a wide variety of sports equipment, casual shoes, and accessories.
With footwear alone, Nike’s global market share is estimated to be 29.25%. The brand is an industry competitor for Adidas and Under Armour.
Tesla Market Share
Tesla is part of the automotive industry and it produces electric vehicles (EV). Within the EV industry, Tesla holds an 18% market share.
While that number may seem small, it’s important to recognize that the market for EV worldwide is significantly smaller than standard vehicles. EV’s market share in the automobile industry is 2.8% and Tesla’s is .8% . These differences are significant, which is why it is important to analyze relative market share to compare your business to your direct competitors, rather than just the market as a whole.
Google Market Share
Google has a market share of 91.86%, making it the most popular search engine in the world. It dominates the competition, as the second-largest industry leader is Bing with a market share of just 2.71%.
Once you’ve calculated your market share and understand how you relate to your industry competitors, you can begin strategizing how to increase your overall revenue.
A great way to compete in your industry is to offer low prices. This is the low-hanging fruit of expanding your market share because consumers typically look for lower cost products.
However, it's also important to note being the cheap option isn't the right move for every brand. You want to ensure that you’re pricing products appropriately in terms of providing value to customers, but not losing out on revenue opportunities for the sake of beating out the competition.
2. Innovate new products and features.
Companies that are innovating and bringing new technology to the table often see their market share increase.
New products and features attract new customers, a.k.a acquisition , which is a driving factor for generating revenue. New customers make new purchases and, in turn, contribute to higher profit margins and larger contributions to overall industry revenue. Larger contributions directly translate to increased market share.
3. Delight your customers.
One of the best ways to grow your market share is to work on existing customer relationships.
By delighting current customers by providing exceptional experiences, you can inspire customer loyalty . Loyal customers are more likely to make repeat purchases, which increases your business revenue and contribution to total industry revenue. As mentioned above, higher revenue contributions equals a higher market share percentage.
4. Increase brand awareness.
Branding awareness and national marketing play a large role in capturing market share. It's important to get your name out there so customers know who you are. Becoming a household name and the preferred brand in an industry will help increase your market share.
Generally, larger companies have the highest market share because they can provide products and services more efficiently and effectively.
But, why is this so important? Below, let's figure out what impact market share can have on your company.
Why is market share important?
Calculating market share lets companies know how competitive they are in their industry. Additionally, the more market share a company has, typically the more innovative, appealing, and marketable they are.
Market share is more important in industries that are based on discretionary income. In industries that are constantly growing, market share doesn't always have a large impact. However, it's important to keep in mind that a company can have too much market share — also known as a monopoly.
For example, with growing industries, which have a growing available market share, companies can still increase their sales even if they are losing market share.
On the other hand, with discretionary income industries, such as travel or non-essential goods like entertainment and leisure, the economy can have a major impact on market share. Sales and margins can vary depending on the time of year, meaning that competition is always at an all-time high.
Higher competition often leads to risky strategies. For instance, companies might be willing to lose money temporarily in order to force competitors out of the industry and gain more of the market share. Once they have more market share, they can raise prices.
Understand Your Market Share to Increase Business Success
Lower market shares can let you know that you need to focus on customer acquisition, marketing to raise brand awareness, and overall strategies to increase revenue. Higher percentages indicate that your current strategy is effective, and you should focus your efforts on customer retention and product innovation.
Whether your company is well-established or just starting out, it’s important to understand your business’ industry standing as it will help you meet business objectives and achieve desired success.
Originally published Mar 25, 2021 7:00:00 AM, updated March 25 2021