Market share is „the percentage of an industry or market's total sales that is earned by a particular company over a specified time period. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company to its market and its competitors.“ 1)
For instance, you might want to know the market share for all cars sold by Daimler within the whole automobile industry in 2011.(Absolute Market Share) Other time you might want to know the market share of your business compared to the market leader.(Relative Market Share)
Market share is one of the main marketing KPIs (Key performance indicator). This KPI helps companies to track their business against the market development or its competitors. Market share helps forecast a company’s future prospect that's important to the management and investors.
“If a company's market share is increasing, this indicates the company's revenues are growing at a rate faster than the industry average. Another useful feature of market share analysis is that it can help chart a course in poor economic conditions. For example, in a recession, a business might experience a fall in revenue. However, if market share remains steady or grows, this reveals the firm is holding its own better than others and is likely to be well positioned to take advantage of business opportunities when economic conditions improve.” 2)
“This metric, supplemented by changes in sales revenue, helps managers evaluate both primary and selective demand in the market. In general sales growth resulting from primary growth (total market growth) is less costly and more profitable that that achieved by capturing share form the competitor. Conversely losses in market share can signal serious long-term problems that require strategic adjustments.” 3)
The simply stated term that market share is ”the ratio of the sales volume of a company on the market volume”4) is not ideal to understand the requirements for measuring the market share.
First of all it’s important for a company to define its market in the right way. If the market is defined too broadly it can dilute the focus of the company and if it’s defined too narrow the company can miss business opportunities. Definition of the right market always depends on several factors like product, company size, country …
“To measure market share, you need to start with information about the business's sales by units or dollar volume for the products or services or both. The size of the market must also be known. This can be determined by looking at published information in trade publications, published government studies and data collected by your local chamber of commerce or similar organizations. Determining a competitor's market share can be more difficult. Publicly traded corporations must publish the relevant information in their annual reports. However, privately held firms do not have to disclose sales or unit volume figures, so you may be limited to making an educated guess.”5)
“Although market share is likely the single most important marketing metric, there is no generally acknowledged best method for calculating it. This is unfortunate, as different methods may yield not only different computations of market share at a given moment, but also widely divergent trends over time”6)
“Absolute market share is designed to show how a business is doing in its field alongside all of its competitors. It lends context to a company's performance so that the company and interested observers can view its financial performance outside of a vacuum, and it provides evidence of a company's influence in the market.”7)
“Relative market share indexes a firm’s or a brand’s market share against that of its leading competitor.8) This is a way of measuring a business' strength in relation to either a company that is pursuing it or that it is pursuing. It's also a way of knowing where potential threats and opportunities lie.”9)