Market share

Market share is the percentage of a market (defined in terms of either units or revenue) accounted for by a specific entity. In a survey of nearly 200 senior marketing managers, 67% responded that they found the revenue- "dollar market share" metric very useful, while 61% found "unit market share" very useful.[1]

"Marketers need to be able to translate and incorporate sales targets into market share because this will demonstrate whether forecasts are to be attained by growing with the market or by capturing share from competitors. The latter will almost always be more difficult to achieve. Market share is closely monitored for signs of change in the competitive landscape, and it frequently drives strategic or tactical action."[2]

Increasing market share is one of the most important objectives of business. The main advantage of using market share as a measure of business performance is that it is less dependent upon macro environmental variables such as the state of the economy or changes in tax policy. However, increasing market share may be dangerous for makers of fungible hazardous products, particularly products sold into the United States market, where they may be subject to market share liability.

Purpose

Market share is said to be a key indicator of market competitiveness—that is, how well a firm is doing against its competitors. "This metric, supplemented by changes in sales revenue, helps managers evaluate both primary and selective demand in their market. That is, it enables them to judge not only total market growth or decline but also trends in customers’ selections among competitors. Generally, sales growth resulting from primary demand (total market growth) is less costly and more profitable than that achieved by capturing share from competitors. Conversely, losses in market share can signal serious long-term problems that require strategic adjustments. Firms with market shares below a certain level may not be viable. Similarly, within a firm’s product line, market share trends for individual products are considered early indicators of future opportunities or problems."[1]

Research has also shown that market share is a desired asset among competing firms.[3] Experts, however, discourage making market share an objective and criterion upon which to base economic policies.[4] The aforementioned usage of market share as a basis for gauging the performance of competing firms has fostered a system in which firms make decisions with regard to their operation with careful consideration of the impact of each decision on the market share of their competitors.

It is generally necessary to commission market research (generally desk/secondary research) to determine. Sometimes, though, one can use primary research to estimate the total market size and a company's market share.

Construction

"Market share: The percentage of a market accounted for by a specific entity."[1]

"Unit market share: The units sold by a particular company as a percentage of total market sales, measured in the same units."[1]

Unit market share (%) = 100 * Unit sales (#) / Total Market Unit Sales (#)

"This formula, of course, can be rearranged to derive either unit sales or total market unit sales from the other two variables, as illustrated in the following:"[1]

Unit sales (#) = Unit market share (%) * Total Market Unit Sales (#) / 100
Total Market Unit Sales (#) = 100 * Unit sales (#) / Unit market share (%)

"Revenue market share: Revenue market share differs from unit market share in that it reflects the prices at which goods are sold. In fact, a relatively simple way to calculate relative price is to divide revenue market share by unit market share."[1]

Revenue market share (%) = 100 * Sales Revenue ($) / Total Market Sales Revenue($)

"As with the unit market share, this equation for revenue market share can be rearranged to calculate either sales revenue or total market sales revenue from the other two variables."[1]

Market share can be decomposed into three components, namely: penetration share, share of customer, and usage index. These three underlying metrics can then be used to help the brand identify market share growth opportunities.[5]

Methodologies

"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. The reasons for these disparities include variations in the lenses through which share is viewed (units versus dollars), where in the channel the measurements are taken (shipments from manufacturers versus consumer purchases), market definition (scope of the competitive universe), and measurement error."[1]

See also

References

As of April 10, 2012, this article is derived in whole or in part from Marketing Metrics: The Definitive Guide to Measuring Marketing Performance by Farris, Bendle, Pfeifer and Reibstein. The copyright holder has licensed the content in a manner that permits reuse under CC BY-SA 3.0 and GFDL. All relevant terms must be followed.

  1. 1 2 3 4 5 6 7 8 Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, New Jersey: Pearson Education, Inc. ISBN 0137058292. The Marketing Accountability Standards Board (MASB) endorses the definitions, purposes, and constructs of classes of measures that appear in Marketing Metrics as part of its ongoing Common Language in Marketing Project.
  2. ↑ Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, New Jersey: Pearson Education, Inc. ISBN 0137058292. The Marketing Accountability Standards Board (MASB) endorses the definitions, purposes, and constructs of classes of measures that appear in Marketing Metrics as part of its ongoing Common Language: Marketing Activities and Metrics Project.
  3. ↑ J. Scott Armstrong and Kesten C. Greene (2007). "Competitor-oriented Objectives: The Myth of Market Share". International Journal of Business. 12 (1): 116–134. ISSN 1083-4346.
  4. ↑ J. Scott Armstrong and Fred Collopy (1996). "Competitor Orientation: Effects of Objectives and Information on Managerial Decisions and Profitability" (PDF). Journal of Marketing Research. American Marketing Association. 23: 188–199.
  5. ↑ Fripp, Geoff.“Decomposing Market Share” The Marketing Study Guide
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