What is Market Share?

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.
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.