What is market share? How to determine relative market share?
What is market share? Why is it important to determine the relative market share of the business? TinoHost will answer for you in this article.
What is market share?
Market share (in English is Market share , also known as market share) is the percentage of consumption of products and services that businesses dominate in the market.
For example: Your company sells footwear products, the total market share of shoes sold is 100 pairs, of which you sell 20 pairs of shoes. So, it can be said that you have a 20% share of the shoe market.
Market share metrics will show how a business performs compared to its competitors. Usually, a large market means higher sales than competitors, because the business has more customers.
Sometimes, small businesses or new to the market will be overwhelmed by monopolistic competitors. For example, you can see the dominance of Facebook with Vietnamese social networks such as Zalo , Biztime, Gapo, Lotus; Google's dominance with Vietnam's Coc Coc. Because the market share of Vietnamese enterprises is too small compared to the big ones.
The role of market share
Market share is a specific metric that helps businesses compare their position, compared to competitors in the same industry/segment.
Is a measure that shows the growth of the business and specifies each segment of the products of the business. From there, businesses can allocate resources more rationally.
Expanding market share will facilitate the expansion of the business and improve profits for the business.
Market share helps businesses make rational decisions, when businesses expand advertising campaigns for a certain product.
Some notes before calculating market share
The most effective way to determine market share is through industry market research . Although they can't help you with market research, because those data are also an asset, creating competition with other businesses.
Market share is a number that represents a company's percentage of the industry as a whole over a specified period of time, for example, by month or by year.
The unit of measurement of market share must be the same, and at the same time . For example, compare your business's shoe sales to your competitors' sales (co-unit), in May (same time period).
All figures should be accurate or relatively accurate, so that the business can make the most accurate assessment of the size of the business compared to the industry, and of the business compared to competitors.
How to calculate market share versus market
The meaning of the business market share compared to the market
The comparison of the market share of the enterprise with the market share of the industry shows the size and position of the enterprise in the market.
Formula for calculating market share versus market
Formula for calculating market share vs market based on revenue
Market share of the enterprise = (Total revenue of the enterprise / total revenue of the industry) x100.
Formula for calculating market share vs market based on product
Market share of the enterprise = (Total product sold by the enterprise / total product sold in the industry) x100.
How to calculate relative market share?
What does calculating relative market share mean?
Relative market share shows the size and advantages of a business compared to its competitors. When calculating the market share of the business compared to competitors, executives can map out appropriate strategies to compete and expand market share.
Identifying and understanding your direct competitors will be of great benefit to your business
Formula to calculate relative market share
Formula for calculating relative market share based on revenue
Relative market share of the business = Total revenue of the business / total revenue of competitors
Formula for calculating relative market share based on product
Firm's relative market share = Firm's total sales / competitors' total sales
Compare competitive advantage
From the above index, you can make a comparison:
If your business's relative market share is > 1 , it means that your business is having a stronger competitive advantage than your competitors.
If your business's relative market share is < 1 , it means that your business is having a competitive advantage over competitors.
If your business's relative market share = 1 , it means your business is having an equal competitive advantage with your competitors.
Examples and calculation of market share
Google's market share
You can refer to the image of how popular Google's market share is on search engines.
Source: Stat Counter
As you can see above, Google accounts for 92.18% of all search engines, and the unit is calculated by month, specifically last May 2021. So it can be said that Google is the most popular search engine in the world.
In second place is Bing, this search engine only accounts for 2.27% of the market, showing that Google's dominance, when using the relative market share formula, we will see the difference in magnitude. between top 1 and top 2 up to more than 40 times!
Samsung's market share
Looking at the chart below, you will see the close relationship between Samsung, a Korean mobile device maker, and Apple, a mobile device manufacturer from the US. Currently in the top 1 and 2 of the data for May 2021. But we will compare the market share of the remaining 4 mobile device manufacturers: Xiaomi, Huawei, Oppo and Vivo.
As you can see, comparing Vivo's market share to the total market is 4.11%, a very small number! And will this make them inferior to the big two, Samsung and Apple? The answer is most likely no, because their direct competitor is Oppo.
So, it's not a big deal to compare your market share with the industry market share. More importantly, being able to see and gauge your direct competitors in the new market is important.
Applying the BCG model to determine the growth market share
The Boston Matrix or BCG matrix is a matrix designed to help businesses consider growth opportunities by market share index. The results after using the matrix, will help businesses decide whether to continue investing or stop developing that product.
The matrix is divided into four parts: the star, the cow, the question mark, and the dog.
Star
The product is having a good market share, expanding and the industry is growing strongly.
Enterprises should continue to invest and market because the product has good growth potential.
Milk cow
The product has a certain market share in the industry and the industry is growing steadily.
This is the desired area of many businesses, because when in this area, businesses are holding a market share with a steady profit.
Question mark
The product has an unknown market share in a high growth industry.
Maybe your product is a new, potential product in a thriving market. However, the future market share has not been determined yet.
The dog
The product has a small market share and the industry is slipping.
The market is no longer potential and does not bring much profit for businesses.
Video tutorial to apply BCG matrix you can refer to this video of Open University.
Through the article, surely you have a better understanding of what market share is, as well as how to determine market share and why market share is so important. TinoHost wishes your business to expand steadily and capture a wider market share!
Frequently asked questions about market share
How to effectively increase market share?
You need to set a target market share and develop a strategy to achieve that market share.
How is ROI related to market share?
Market share is closely related to profitability, so managers must set short-term and long-term goals to achieve the rate of return commensurate with market share.
Which product's market share should be focused on?
You should focus on capturing the market share of less used products. For example cars, or pretty expensive things. Consumers will spend money to buy branded and quality products to "worth" their money.
How to properly assess the growth of the business's market share?
To properly assess the growth market share of the business, you can refer to the use of the Boston Matrix.