Market share is the portion or percentage of sales of a particular product or service in a given region that are controlled by a company. If, for example, there are 100 widgets sold in a country and company A sells 43 of them, then company A has a 43% market share. You can also calculate market share using revenue instead of units sold. If company A sold widgets for a total cost of $860 and the people in the country spend a total of $2,000 on the same widgets, then the market share is $860/$2,000 or 43%. The two different methods of calculating market share won't always provide the same answer, because different companies may charge slightly different prices for the same type of widget.
Market share is used by businesses to determine their competitive strength in a sector as compared to other companies in the same sector. It also allows you to accurately assess your performance from year to year. If you only use sales to measure your performance, then you don't take into account the market conditions that may have improved or decreased your sales. Your sales may have gone up because of increased popularity of your type of widget, or they may have gone down because of a drought or recession. Since those factors are beyond your control, they don't give you meaningful information about how you are actually doing as a company in terms of improving your business. By measuring market share, you can see if you are doing better or worse compared to other companies that are facing the same challenges and opportunities that you are.
There are four basic ways you can improve your market share. You can improve your product so that it is better than your competitors or you can change the price or offer special incentives for buyers, such as discounts or sales. Alternatively, you can find new methods to distribute your product so people can buy it in more places. Finally, you can advertise and promote your product. Using these techniques in any combination may improve market share.
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Increased market share is not always the best solution for businesses. It might not be profitable if it is associated with expensive advertising or a big price decrease. A company may not be able to meet the demand of an increased market share without huge investments in new equipment and employees. In some cases it can be to a company's advantage to decrease market share, if the lower costs of lower market share can improve profitability. Managing market share, therefore, is a very important aspect of managing a business.
