Market Shares: Overview and Formulas

Market share is a measure of how the brand/firm is performing relative to its competition.

The measurement of market share is a relatively common marketing metric. There are two main types of market share metrics, namely unit market share and revenue market share.

Unit market share

In marketing the word “unit” refers to individual product units. For example, if we are selling shoes then a unit is one pair of shoes. If we are selling candy bars then a unit is one candy bar, and so on.

Unit market share formula

market share formulaNumber of unit sales for the firm/brand divided by total number of unit sales for the market

Please note that market shares are measured on a percentage basis.

Revenue market share

In marketing the word “revenue” refers to sales revenue at the retail level. We are interested in identifying the share of the consumers’ total spend in the market.

Revenue market share formula

Total sales revenue for the firm/brand at the retailer level divided by the total sales revenue for all players in the market

Again revenue market share is measured as a percentage.

The purpose of market share metric

The main intention of the two market share metrics is to identify how well the firm/brand is performing relative to its competition.

Ideally, brands look to grow their market share over time – as this represents a preference by consumers to purchase the product. Likewise a reduction in market share over time indicates that the brand is becoming less preferred relative to its competition.

What an Increasing Market Share Indicates

1. Performance Indicator: Market share is a key indicator of market competitiveness, illustrating how well a firm is doing compared to its rivals.

A higher market share often implies that the company has a strong position in the market.

2. Consumer Preference: Increasing market share signals growing consumer preference for a brand’s products or services.

It suggests that more consumers are choosing this brand over its competitors, which can be a result of various factors such as superior quality, better pricing, effective marketing, or more efficient distribution.

3. Market Power and Influence: Companies with larger market shares often have greater influence over market conditions.

This can include pricing power, bargaining power with suppliers and customers, and a stronger ability to invest in research and development.

4. Economies of Scale: A higher market share can lead to economies of scale, where the cost per unit of production decreases as the volume of production increases. This can result in higher profit margins.

5. Investor Attractiveness: Market share is a critical metric for investors.

A growing market share can attract investors, as it indicates a company’s growth potential and competitive strength.

What a Decreasing Market Share Indicates

1. Increased Competition: New entrants or stronger existing competitors can erode a company’s market share.

2. Changing Consumer Trends: A failure to keep up with changing consumer preferences or technological advancements can lead to a loss of market share.

3. Pricing and Quality Issues: If a company’s products are perceived as overpriced or of inferior quality compared to competitors, this can lead to a decrease in market share.

How to Increase Market Share

1. Innovation: Continuously improving or introducing new products/services to meet evolving consumer needs.

2. Market Expansion: Entering new markets or segments can increase a company’s customer base.

3. Enhancing Brand Loyalty: Through effective marketing and superior customer service, companies can build and maintain a loyal customer base.

4. Competitive Pricing: Adjusting pricing strategies to offer more value than competitors.

5. Acquisitions and Partnerships: Merging with or acquiring competitors can rapidly increase market share.

Which is better? Unit or revenue market share?

In markets where the price points are relatively similar, then both metrics will return reasonably similar results in either market share measures will be suitable.

However, if a firm wants to dominate retail shelf space, reduce competition, utilize excess production, pursue economies of scale, is pursuing a discounting strategy, and so on – then unit market share would be more appropriate.

On the other hand, if the firm wants to charge a price premium, then a revenue market share figure would be more appropriate. Please see the article on unit versus revenue market share.

Related topics

Relative market share
Market concentration
Variations of market share
Examples for calculating market shares
The three components of market share

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