When analyzing a company, the market
share is an important measure of performance, especially relative
to its competitors. It represents a percentage of the market where
the company distributes its products and services.
There are multiple ways of calculating
the market share:
Market Share =
Market Share =
Increasing the market share is
one of the main objectives of all profit-based organizations.
Attaining this objective comes with
- Improved profitability. Increasing sales are reflected in
- Longer product life cycle.
- Greater scale operations result in cost advantages and
eventually, economies of scale.
- Surpassing the competitors improves company's reputation and influence.
- Preservation or increasing of product quality without
involving additional investments.
As tempting as this opportunity seems,
there are also some disadvantages involved:
- For the companies that operate with fungible goods, an
increased market share can be threat.
- Attracting more customers may involve high advertising costs
- diminution of prices, that can both cause overall profit
- A higher market share may required new investments in
equipment and work force that may result in higher costs that affect
In some cases, companies can increase their profitability by decreased
market share. Better selecting the customers and focusing on profitable
market segment means lowering the costs that lead to high profitability.
Ways of increasing market share:
- Product improvement, so that it is of higher quality than
- Price strategies. Decreasing the price may attract more
customers, but it also involves the danger of a price war.
- Expansion of distribution by reaching to a larger target
market or intensifying the current distribution channels.
- Advertising and promotions have a favorable effect on the
market share. Discounts and sales usually broaden the customer base.
The market share in an industry
determines the market concentration. If a large segment of the
market is owned by the several leading companies, then the market is
highly concentrated. On the other hand, if all the competitors own a
relatively small market share and the market is divided between
numerous competitors, the market is segmented.