Updated May 2023
What is market share?
I would assume that most marketers know what market share, but here is a quick reminder:
Market share is a key indicator of a brand’s relative competitive position, by highlighting the brand’s share of sales in a product category.
There are two ways to calculate market share:
- by units (often referred to as volume market share) and
- by revenue (also known as value or dollar market share)
The formula to calculate unit market share is:
- Unit Market Share = (Units Sold by the Firm’s Brand or Products/ Total Units Sold in the Product Category or Market) (Shown as a percentage)
The formula to calculate revenue market share is:
- Revenue Market Share = (Company’s Revenue from the Product or Brand / Total Market Revenue) (Shown as a percentage)
When should I use market share?
The market share metric is relevant in the following circumstances:
You have access to reasonably accurate information of most/all key competitors’ sales data
Market share becomes more valuable when there’s easy access to accurate data on competitors’ sales. In other words, your market share position is very easy to identify and calculate.
For example, in the fast-moving consumer goods (FMCG) industry, companies typically have access to detailed retail data. In these markets and their product categories, market share is a key matric to determine whether the brand is gaining or losing against competitors, and consequently, we can evaluate the effectiveness of our marketing strategies.
The competitive position of the brand is important
If a brand operates in a competitive marketplace, tracking market share can help measure its performance relative to competitors.
In industries where there is intensive competition rivalry, market share data can help the brand assess and track its relative position and success (or otherwise).
And market shares can help identify whether a company is the market leader, a follower, or a niche player. These positions could have implications on business strategies, marketing communications, and product development.
For more information, please review:
Note: Market share metrics is more commonly used for firms and brands that see themselves in a competitive battle.
You regularly invest in new products and/or market expansion
Brands seeking to expand, launch new products, or enter new markets may use market share data to identify opportunities and threats.
You need to deliver on marketing return on investment (ROMI)
If reporting on ROMI (or using ROMI) is a key consideration – then market share measures are usually quite helpful.
This is because you can demonstrate long-term success, improved competitive performance – and well as using the market share information to help set baseline measures for the ROMI calculations.
Your marketplace is dynamic and evolving
Market share may be used to help detect changes in market dynamics, such as the impact of new entrants or significant shifts in the position of established brands.
When is market share not important to use?
Market share is less likely to be used for:
Small businesses, where market share is generally irrelevant
Small businesses will usually find market share less relevant, or even quite useless.
This is because small businesses often operate within niche markets or localized areas. For instance, a family-run bakery in a small town might enjoy a large market share within its local community but in the context of the national or global bakery market, its market share might be minuscule, perhaps even as low as 0.01%.
Usually most small businesses operate with different objectives compared to large corporations. Their goal is not to dominate a market but to make good profits by offering a valuable product or service to the local community.
Industries that are very diverse (that is, no clear competitors for market definition)
When it comes to industries that are very diverse, calculating market share is simply too challenging or simply inaccurate.
For example, in the creative arts industry, there are artists, musicians, writers, and filmmakers, each offering is distinct and unique, catering to different consumer tastes.
But defining the market is tough, as compared to a more homogeneous industry like automotive manufacturing or fast-food restaurants.
In this example, the concept of market share is almost pointless. In marketing theory (differentiation), when each offering is so unique, each artist could be seen as having 100% market share of their artistic niche. However, this doesn’t provide much actionable insight or strategic guidance.
Industries that do not have access to competitors sales information
Tracking market share requires access to data about the total sales of all competitors in the defined market.
Some sectors, like privately held companies or certain technology fields, might not share sales data openly. In such cases, accurate and relevant market share data does not exist, or it is too challenging or costly to obtain.
In these cases, these brands should focus on more accessible marketing metrics, such as revenue growth, profit margin, customer retention, customer satisfaction levels, or even brand awareness and preference.
Find Out More About Using Market Shares in Marketing
