Market share
Market share is a key economic indicator that reflects the percentage of an industry's total sales or revenue that a specific company commands among consumers. This metric serves as an essential measure of a company's competitive position and success relative to its peers within the same industry. Market share can be evaluated in terms of volume (the number of units sold) or value (the revenue generated from those sales), and it provides insights into consumer preferences for a company's products or services.
The concept is often analyzed within specific market segments, which can be defined by demographics, psychographics, buyer behavior, and geography. This segmentation allows businesses to understand trends and tailor their marketing strategies effectively. Companies are categorized based on their market share into market leaders, challengers, and followers, each with distinct strategies for maintaining or increasing their share.
Understanding market share is crucial for businesses as it informs strategic decisions about growth, resource allocation, and competitive positioning. However, companies with very high market shares may face challenges adapting to rapid changes in consumer preferences or market dynamics, as they may be slower to innovate compared to smaller, more agile competitors.
On this Page
Subject Terms
Market share
In economics, market share is an industry-specific metric that measures the amount of business a particular company commands among a particular group of consumers. It is expressed as a percentage of the total amount of revenue or sales volume generated in that industry by that consumer group and serves as an important gauge of a company's success relative to its peers and competitors. Market share is also a major indicator of consumer preferences for a company's branded products or services. It often is used to help analysts and investors understand how a company is positioned when compared to other companies operating in the same industry.
Background
Market share is most often discussed in terms of consumer markets, which are made up of purchasers who buy products and services for their own use rather than for resale purposes. Consumer markets are segmented in four main ways, which correspond to the four key characteristics that distinguish particular types of consumers from one another. These segments include demographics, psychographics, buyer behavior, and buyer geography.
Demographics breaks down consumer markets into exclusive categories that consider specific physical, social, or economic attributes of particular groups of buyers. Examples include age range, gender, income level, education level, race or ethnicity, and occupation, among others. For instance, age range demographics might focus on eighteen- to twenty-four-year-olds, thirty-five- to fifty-four-year-olds, or people aged sixty-five and up. Gender demographics looks at the buying behaviors of women versus men, while income demographics focuses on people with annual earnings within certain ranges or above or below certain thresholds.
Psychographics considers psychological factors, such as the values, opinions, interests, and/or attitudes of particular segments of a consumer market. For example, a psychographic market breakdown might look at people who are interested in a particular hobby or sport, regardless of their age, gender, income level, race or ethnicity, or any other demographic element.
Buyer behavior often is quantified through market research and encompasses a range of factors, such as how often certain groups of customers patronize a particular type of business, the rates at which consumers use a given business's products or services or other consumer behaviors. For example, restaurant chains may look at how frequently certain groups of people tend to dine outside their homes and divide them into regular, moderate, or infrequent restaurant customers. Businesses also understand that consumers often seek specific benefits when choosing a particular product or service, and this informs behavior-centered marketing strategies. Brand loyalty and the length of time for which a consumer has been a customer of a business or competitor are other commonly cited aspects of buyer behavior.
Buyer geography looks at a consumer group's physical location. It divides consumers into groups based on region, the population density of the area in which they live, country of residence, and so on.
Overview
While market share can simply look at the percentage of business a company earns relative to the overall amount of business generated by the industry in which it operates, it is more commonly analyzed within the context of precise market segments. For instance, a technology company that manufactures smartphones may command a very small percentage of the global smartphone industry, but it may have a much higher market share among eighteen- to twenty-four-year-olds who live in major metropolitan areas of the United States. Businesses that operate internationally also regularly focus on the market shares they command in specific countries, as this can inform strategic campaigns to move into underserved markets or increase their market share in particular parts of the world.
Market share can be expressed in two main ways: by volume and by value. For example, if one hundred cars are sold in a particular market and forty of those cars were manufactured by the ABC Car Company, then the ABC Car Company can be said to hold a 40 percent market share by volume. Alternately, if those one hundred cars generated a total of $100,000 in revenue but the forty cars sold by the ABC Car Company were worth $65,000, then the ABC Car Company would hold a 65 percent market share by value even though it commands only a 40 percent market share by volume.
Whether considered by volume or by value, market share analyses tend to group businesses into three categories, which express their relative positions within a specific consumer market. These categories include market leaders, market challengers, and market followers. The market leader is the company that commands the highest percentage of business in a particular industry or segment, while market challengers hold significant percentages of that business but trail the market leader. Market followers are generally content to maintain a smaller but steady share of the overall market, which they often achieve simply by following the established industry trends that drive buyer behavior.
In general, companies with higher market shares usually need to commit less effort to selling their products or services, as they already have achieved strong levels of consumer recognition. When markets grow and expand, market leaders tend to capture more of the new business than market challengers or market followers. However, expanding markets present market challengers with fresh opportunities to become more competitive relative to the market leader.
Companies typically make strategic decisions regarding their approaches to capturing, maintaining, or expanding their market share, especially in the case of market challengers and market followers. It is common for businesses to identify a desirable market share level, either by volume or by value, and then focus their efforts and investments on reaching that level. Acquiring more market share can cost companies a great deal of resources, and their incremental gains may not provide favorable returns if their objectives are too aggressive.
In competitive economies, it can be unfavorable to hold extremely high market shares. New innovations and rapid, unexpected shifts in consumer preferences or buying behavior can have a profound, immediate, and negative impact on market leaders that command overwhelmingly high shares of a particular market. Smaller and more agile competitors can typically respond to such changes much more quickly and strategically than large businesses, which often struggle when tasked with the need to make sudden, sweeping changes to their entrenched strategies and operations.
Bibliography
"Definition of Market Share." Economic Times of India, 2018, economictimes.indiatimes.com/definition/market-share. Accessed 18 Dec. 2024.
Ghosh, Atanu. IIMA—Strategies for Growth: How to Move Your Business Up the Ladder. Random House India, 2016.
Hayes, Adam. “Market Share: What It Is and the Formula for Calculating It.” Investopedia, 23 Aug. 2023, www.investopedia.com/terms/m/marketshare.asp. Accessed 19 Dec. 2024.
Kramer, Leslie. “What Strategies Do Companies Employ to Increase Market Share?” Investopedia, 30 Apr. 2024, www.investopedia.com/ask/answers/031815/what-strategies-do-companies-employ-increase-market-share.asp. Accessed 19 Dec. 2024.
"Market Share Research Methodologies." Gartner Inc.,2018, www.gartner.com/technology/research/methodologies/research‗mshare.jsp. Accessed 19 Dec. 2024.
Mauboussin, Michael J., and Dan Callahan. “Market Share - Understanding Competitive Advantage through Market Power.” Consilent Observer, Morgan Stanley, 15 Sept. 2022, www.morganstanley.com/im/publication/insights/articles/article‗marketshare.pdf. Accessed 19 Dec. 2024.
Scherling, Mark. Practical Risk Management for the CIO. CRC Press, 2016, pp. 113–27.
Suttle, Rick. "Characteristics of Consumer Markets." Chron, 2018, smallbusiness.chron.com/characteristics-consumer-markets-1418.html. Accessed 19 Dec. 2024.
Tice, Carol. "Five Ways Your Business Can Grab Market Share Today." Entrepreneur,9 Nov. 2011, www.entrepreneur.com/article/220670. Accessed 19 Dec. 2024.