At-a-Glance
Core concept & importance
Market Share is a measure of competitiveness. It measures how your brand, how your business performs relative to competition.
Depending on business question and data availability, performance can use different metrics: volume, revenue, or profit.
How to use
Market Share can be used in different ways to evaluate performance and inform decision making:
- Identify growth opportunities
- Support retailer negotiations
- Setting long-term objectives
Watchouts
Define your market and competitive set carefully.
Use monthly or quarterly market share performance for evaluating short-term marketing & promotion actions. Use long-term trends for evaluating sustainable competitive advantage.
Winning market share over long-term can be challenging. Prioritizing growing segments or categories can be more successful strategy.
Table of Contents
Introduction
Marketeers use this metric to determine their competitive position in the market for the last century. The concept was introduced by Arthur C. Nielsen, the founder of AC Nielsen Company, and has since become a key performance indicator (KPI) for businesses. In today’s fast-paced and fiercely competitive business landscape, it has become more important than ever for companies.
- By measuring the percentage of total sales that a company commands within a specific market, knowing your share of market allows businesses to understand their level of competitiveness in comparison to their rivals.
- This KPI provides valuable insights into the success of a company’s products or services and enables businesses to identify areas for improvement.
- Furthermore, this metric is essential for identifying growth opportunities. By analyzing their market share, companies can determine which areas they can expand into and gain a larger portion. This enables businesses to make informed decisions on where to allocate resources and focus their efforts.
What is Market Share?
It is a metric for gauging the competitive position in a specific market. In simple terms, share of market is the percentage of total sales for a particular product or service that a company commands. To calculate market share, you divide the company’s sales by the total sales of the industry or category in which it operates. For instance, if a company has sales of $50 million in a market worth $100 million, its share would be 50%.
The formula is straightforward and can use various metrics such as revenue, unit sales, volume sales, or profit. The primary purpose is to determine for a specific metric how much of the market a company has captured compared to its competitors.
However, in practice, measuring shares accurately can be challenging. It requires reliable data on sales figures for both the company and its competitors. Obtaining this data can be difficult, especially in industries where data is not readily available. Companies like NielsenIQ, IRI Information Resources, GfK, IQVIA, or Kantar Worldpanel provide these market measurements
"Market share is the ultimate measure of business success."
Why is Market Share relevant?
Understanding market share is critical for businesses for several reasons including.
- It provides valuable insights into your company’s competitive position in the industry. A high market share indicates that your business is performing well in comparison to your rivals, while a low market share may indicate areas for improvement.
- Tracking your company’s performance over time. By analyzing changes in market share, you can identify trends, determine the impact of new product launches or marketing campaigns, and make informed decisions about future investments. To evaluate sustainable competitive advantage, it is important to use a long-term perspective, such as market share trends over the last 5 years. To evaluate the impact of marketing and promotion campaigns, a short-term perspective, such as weekly market share changes in the previous quarter, may be more appropriate.
- Helping businesses determine their pricing power. If your company’s market share is high relative to your brand’s price positioning, it indicates that your brand has a strong value perception. Conversely, if your company’s market share is low relative to your brand’s price positioning, it may indicate that you need to improve your brand strength and value perception
How to use Market Share?
Now that we have talked about what market share is and why it is relevant, let’s take a closer look at how businesses can use it to their advantage.
Benchmarking against competitors
One effective strategy for leveraging market share is to benchmark your company’s performance against that of your competitors. By comparing your market share to that of your competitors, you can gain valuable insights into areas where your company excels and areas where improvement may be necessary.
If your company’s market share exceeds that of your competitors, this could indicate that your products or services are more popular or competitively priced. Armed with this information, you can make data-driven decisions about where to invest resources and further expand your market share.
Conversely, if your company’s market share lags behind that of your competitors, this could signal the need to reevaluate your overall strategy. This might entail investing in more effective marketing campaigns, improving your product offerings, or entering new markets to gain a larger share of the market.
By benchmarking your company’s performance against that of your competitors using market share, you can gain a clearer understanding of your competitive position in the market. Armed with this knowledge, you can make informed decisions about how to allocate resources and focus your efforts in order to remain competitive and grow your market share.
"Competition is a catalyst for innovation and growth, and it pushes businesses to be their best."
Sales management and retailer negotiations
Market share is a key performance indicator (KPI) that holds significant power in sales management and retailer negotiations. By highlighting your company’s market share in a particular market, category, or segment, you can negotiate more favorable terms with retailers.
Retailers are constantly on the lookout for products that are in high demand and sell well, and a company with a higher market share can provide compelling evidence of this. By demonstrating that your products are popular among consumers, you can negotiate more advantageous terms with retailers, such as better shelf placement, lower fees, or even exclusive agreements.
Moreover, retailers are motivated to maximize their profits, and partnering with a company that holds a higher market share can facilitate this goal. Retailers are more likely to invest in marketing and promotional efforts for products with a higher market share, as they are more likely to sell well and generate significant revenue.
By leveraging market share as a bargaining tool in retailer negotiations, you can secure more favorable terms and position your company for success in the marketplace.
Identifying growth opportunities
In addition to its applications in benchmarking and retailer negotiations, market share can also serve as a valuable tool for identifying growth opportunities. By analyzing changes in market share over time, businesses can identify areas of the market that are experiencing growth or contraction, and make strategic investments to maximize growth potential.
For instance, if your company’s market share is on the rise in a specific market segment, it may be worthwhile to allocate additional resources to capitalize on this trend. This could involve developing new products or services that cater to the growing segment, ramping up marketing efforts to target that audience, or expanding into new geographic regions where the segment is particularly strong.
Conversely, if your company’s market share is shrinking in a given segment, this may signal a need to rethink your overall strategy or pivot into other markets. This could entail discontinuing products or services that are underperforming, enhancing existing offerings, or exploring new markets with promising growth potential.
By leveraging insights from market share analysis to identify areas for growth, businesses can make informed decisions about where to allocate resources and focus their efforts. This can enable them to maintain a competitive edge, expand their market share, and ultimately drive business growth.
Evaluating performance
Monitoring market share over time is crucial for businesses, as it provides a clear and direct KPI for assessing their competitive position in the market. Gaining market share signifies that a company is excelling in more ways than its competitors, while losing market share suggests that competitors are outperforming the company.
By tracking changes in market share, businesses can evaluate the effectiveness of their marketing campaigns, new product launches, and other strategic initiatives. For example, if a company experiences a boost in market share following a product launch or marketing campaign, it may indicate that their efforts were successful. In such cases, it is essential to delve deeper into the underlying factors contributing to this success and identify opportunities to replicate these achievements in future initiatives.
On the other hand, if a company’s market share decreases, it should serve as a warning sign that the company needs to take action. This could be an indication of a failed marketing campaign, a poorly executed product launch, or a product that is not meeting expectations. In these scenarios, companies must identify the root cause of the problem and take corrective action to enhance their competitive position in the market.
Inform your strategy
Market share is one of the most critical metrics that businesses can use to inform their overall strategy. By analyzing market share in conjunction with other factors such as customer needs, competitor behavior, and market size and growth, businesses can develop a comprehensive strategy that positions them for success.
Analyzing market share enables businesses to identify areas that require improvement and where resources can be invested to grow market share. It can also help businesses to identify gaps in the market that can be exploited, such as unmet customer needs or untapped geographic regions.
Furthermore, by analyzing market share alongside other key factors such as customer needs, competitor behavior, and market trends, businesses can develop a more targeted and effective strategy. Armed with this information, businesses can make informed decisions about resource allocation, product or service development, and pricing strategies to remain competitive.
"Market share is not a trophy, it's a responsibility. A responsibility to continue innovating and delivering value to customers."
Setting long-term objectives
Leveraging market share in your business strategy can be a powerful tool, and one effective approach is to set specific objectives for increasing or maintaining your market share. The late Jack Welch, former CEO of GE, was known for demanding that business units be ranked No. 1 or 2 in their industry or be sold.
By setting such objectives, businesses can focus their efforts on the areas that will have the greatest impact on their market share. This could involve investing in marketing campaigns, enhancing product offerings, or expanding into new markets. Objectives like these help businesses prioritize their resources and maintain their focus on achieving their goals.
Furthermore, setting specific market share objectives can help businesses measure their progress and make necessary adjustments. If a business falls short of its objectives, it can analyze the reasons why and take corrective action to get back on track. Conversely, if a business surpasses its objectives, it can use the insights gained to inform its next set of objectives.
Overall, setting specific market share objectives can be an effective approach for businesses seeking to enhance their competitive position and achieve long-term growth. However, it is important to recognize that setting ambitious objectives requires a thorough understanding of the market, competitors, and customer needs, as well as a willingness to make strategic investments and take calculated risks. Only through careful planning and execution can businesses successfully leverage market share to achieve their objectives and thrive in a dynamic and competitive business landscape.
When Market Share isn't everything
Market share is a crucial KPI for businesses, but it only tells end of the story. It is a useful metric for measuring what a company has achieved, it does not provide insight into how they achieved it. Therefore, businesses must combine market share with other metrics to gain a more complete picture of their performance.
Using market share in conjunction with other metrics provides businesses with a more comprehensive view of their performance. For example, while high market share is a positive indicator, it does not necessarily equate to profitability or customer satisfaction. Hence, businesses need to track other metrics to ensure that they are achieving their business objectives holistically.
Furthermore, businesses should use a range of metrics to track their performance over time. By using a combination of metrics, businesses can ensure that they are achieving their objectives both in the short term and the long term.
Nudged towards short-term results
Market share is an essential metric for measuring a company’s performance. Businesses need to deliver short-term results. And price promotions are a “simple” way gain share in the short term. But sprawling price promotions will not be sustainable in the long run and are likely to hurt profitability.
Risk of limited view of the full market potential
While market share is a valuable metric for measuring a company’s performance in a specific category at a specific point in time, it provides a limited view of the full market potential. This limitation arises from how the category is defined, which can vary depending on the company’s perspective.
If a company defines its category too narrowly, it may overlook broader market dynamics, such as changes in customer needs, technological advancements, or shifts in consumer behavior. Therefore, companies need to be mindful of how they define their categories and markets when interpreting their market share and making strategic decisions.
To address this limitation, companies need to adopt a more holistic approach to market analysis. This approach involves analyzing multiple factors, such as customer needs, technological advancements, and industry trends, to gain a better understanding of the market’s potential. By adopting a broader perspective, companies can identify new opportunities for growth and stay ahead of their competitors.
FAQ
Frequently Asked Questions