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What is Market Share?
Market share represents the percentage of total sales in an industry or market that is earned by a particular company over a specified time period. It is a key indicator of a company’s competitiveness and market position.
Definition
Market share is the portion of a market controlled by a company, calculated as its sales divided by total market sales.
Key Takeaways
- Measures a company’s relative position in the market.
- Higher market share often indicates stronger competitive power.
- Used to evaluate performance, strategy effectiveness, and industry influence.
Understanding Market Share
Market share helps businesses understand how well they are performing compared to competitors. A growing market share suggests effective strategy, strong customer loyalty, or competitive advantage. A declining share may indicate increased competition, poor performance, or market shifts.
Companies often strive to increase market share because it can lead to economies of scale, pricing power, and enhanced brand recognition.
Market share can be measured in two ways:
- Revenue Market Share – based on sales value.
- Unit Market Share – based on number of units sold.
Formula (If Applicable)
Market Share (%) = (Company Sales ÷ Total Market Sales) × 100
Real-World Example
If a company sold P50 million worth of products in a market worth P200 million:
Market Share = (50M ÷ 200M) × 100 = 25%
Importance in Business or Economics
Market share is a critical performance metric used by executives, investors, and analysts. It influences pricing strategy, competitive behaviour, and investment decisions. It also helps identify market leaders and emerging competitors.
Types or Variations
- Revenue Market Share
- Unit Market Share
- Relative Market Share (compares a firm to its largest competitor)
Related Terms
- Market Penetration
- Competitive Advantage
- Market Positioning
Sources and Further Reading
- Investopedia – Market Share: https://www.investopedia.com/terms/m/marketshare.asp
- Statista – Industry Market Data: https://www.statista.com
- Harvard Business Review – Competition Strategy: https://hbr.org
Quick Reference
- Indicates company competitiveness.
- Calculated as company sales divided by total market sales.
- Helps guide strategy and performance evaluation.
Frequently Asked Questions (FAQs)
Is higher market share always better?
Generally yes, but rapid expansion may reduce profitability if not managed well.
How often should companies measure market share?
Quarterly or annually, depending on industry and strategic needs.
What affects market share?
Pricing, innovation, customer loyalty, distribution strength, and competition.
