This post was most recently updated on December 20th, 2015
What does market share mean to a business owner, who’s trying to understand where his business stands against the competitors? A lot! Market share can help a business, or a marketer, determine what their current standing is in the environment they operate in against their competitors.
It refers to the share percentage of business volume in a market. It is often associated with profitability, and is one of the key determinants in setting business objectives, KPIs and developing business strategy. More market share signifies more strength and business presence against competitors, and this is one of the many reasons marketers and business owners try to increase their market share.
Market share can be calculated by the number of units of a product, or in monetary value.
Let’s do a quick market share analysis. Assume that you’re in the business of selling volleyballs. The total market size last year was 1,000 volleyballs, and you were competing against 2 competitors: Competitor A and Competitor B.
- You sold 400 volleyballs
- Competitor A sold 350 volleyballs
- Competitor B sold 250 volleyballs
Now let’s look at how the market share can vary based on how it is calculated:
Market Share by Unit
You would simply divide the number of units you and your competitors sold by the total numbers of volleyballs sold in a market last year.
- Your market share: 40%
- Competitor A’s market share: 35%
- Competitor B’s market share: 25%
Market Share by Monetary Value
Now imagine each business sells their volleyball at a different price point:
- You sold 400 volleyballs @ $5
- Competitor A sold 350 volleyballs $4
- Competitor B sold 250 volleyballs $7
Following is the total revenue of “volleyball” sales, generated by each business:
- Your total revenue: $2,000
- Competitor A: $1,400
- Competitor B: $1,750
To calculate the market shares based on monetary value, we will divide the revenue of each business by the total “volleyball” revenue:
- Your market share: 38.8%
- Competitor A’s market share: 27.2%
- Competitor B’s market share: 34%
Did you see the impact of pricing on market share? Both of these methods are important because each of them give you a different scenario. You might be selling more volleyballs, but you might not be as profitable as a business as your competitor.
A number of factors will affect market share, and a business’s current standing. For example, a fine-dining restaurant will end up doing more sales in a posh upper class area vs busy street in a middle class area. That’s because of relevance of the location to the customer.
Hope the explanations helped. Would you prefer looking at market share by unit, or market share by monetary value?