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Concept Version 9
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Market Share

Market share is an indicator of how well a firm is doing against its competitors and can often be influenced through pricing.

Learning Objective

  • Explain the importance of market share


Key Points

    • Market share, usually measured as a percentage of a market's total revenue captured by a single entity, is a key indicator of market competitiveness.
    • Managers can use market share data to evaluate a firm's overall performance, market demand, market growth, and customer preference trends.
    • Market share is measured by looking at a firm's sales revenue as a percentage of the total market revenue.

Term

  • Market Share

    The percentage amount of a market captured by a single firm


Example

    • For a very basic example, let's look at the market for baubles. Suppose there are 1000 total baubles sold in the U.S. per year for $1 each. If company A sold 600 of those baubles, they have 60% of the market share.

Full Text

Market share is the percentage of a market (defined in terms of either units or revenue) accounted for by a specific entity.

Market share is a key indicator of market competitiveness—that is, how well a firm is doing in terms of its competition. This metric, supplemented by changes in sales revenue, helps managers evaluate both primary and selective demand in their market. It enables them to judge not only total market growth or decline, but also trends in customers' selections among competitors. Generally, sales growth resulting from primary demand (total market growth) is less costly and more profitable than that achieved by capturing share from competitors. Conversely, losses in market share can signal serious long-term problems that require strategic adjustments. Firms with market shares below a certain level may not be viable. Similarly, within a firm's product line, market share trends for individual products are considered early indicators of future opportunities or problems.

Increasing market share is one of the most important objectives of business. The main advantage of using market share as a measure of business performance is that it is less dependent upon macroenvironmental variables, such as the state of the economy or changes in tax policy. However, increasing market share may be dangerous for makers of fungible hazardous products, particularly products sold into the United States market, where they may be subject to market share liability.

Although market share is likely the single most important marketing metric, there is no generally acknowledged best method for calculating it. This is unfortunate as different methods may yield not only different computations of market share at a given moment but also widely divergent trends over time. The reasons for these disparities include variations in the lenses through which share is viewed (units versus dollars), where in the channel the measurements are taken (shipments from manufacturers versus consumer purchases), market definition (scope of the competitive universe), and measurement error.

Market Share

Mobile phone market share in Q3 2008

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