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What Is Market Share?

In 1962, G.M. had a 51% market share, meaning that it made more than half of the automobile sales that year.
Companies often launch new products to regain market share, as happened when Boeing developed the 787 to win customers back from Airbus.
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  • Last Modified Date: 15 August 2014
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Market share is a company's percentage of sales in a particular industry. Both increases and decreases may affect profits, so managers typically adjust operations and marketing strategies to increase or decrease it as needed. People also look at this figure before they invest in a company, since it can indicate a business's competitiveness. When discussing this topic, it's important to remember that a share market is something different: it's the exchange of companies' stocks.

Calculating Market Share

Market share can be calculated either in terms of the money earned from sales or the number of units sold. The basic way of calculating this percentage is just revenue or units sold divided by that of the total market: for instance, if a computer store sold one out of every four computers, it would have a 25% market share. Real-life calculations are a little more difficult though, since the numbers can change drastically based on how a business defines its market. Adjusting for inflation and the way that sales or units are counted has an impact as well.

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For instance, a company could get a completely different percentage if it considered itself as compared to a global or local market, or if it calculated orders fulfilled rather than orders made. Likewise, even if a company had a very large share, it may not be as profitable as it initially seems if it has to pay very high taxes or labor costs. Since there are so many factors to consider, managers usually use a combined calculation of units and revenue and use these figures as only one small part of their in-house statistics.

Importance for Businesses

This information is really important for businesses, since it can help managers make better-informed decisions for increasing growth and profits. Having a large market share also has some practical benefits: it can also make it easier to get products and supplies more cheaply, since it is able to buy in bulk. This in turn can help with sales, since the company can stock more of an item, meaning that people will be more likely to go there to buy it since they can be reasonably sure of getting it there. Additionally, businesses with a big presence in the market are seen as a worthwhile investment, as they usually profit by keeping up with the whole industry.

Despite this, having a larger market share isn't always a good thing. It might not be profitable if the increase is associated with expensive advertising or a big price decrease. A company may not be able to meet the demand of an increased percentage of the market without huge investments in new equipment and employees. Too much of an increase also may not be beneficial if it violates a country's anti-trust laws. Additionally, if a company values its share of the market above sustainable practices, it can cause big problems in the long run.

Importance for Investors

Knowing a company's market share is also important for investors, since it can give them a better idea of its competitiveness. Though this doesn't always go hand in hand with profitability, it's often a good indicator of whether a business is performing well or not, and drastic changes often indicate problems or changes for the better. Those with larger shares are often more likely to give investors a better Return on Investment (ROI) than those with a very small share, though there are a lot of other factors at play.

Strategies

There are many different ways to increase market share; companies usually use a combination of strategies. Sometimes something as basic as increasing advertising can have huge effects, as can adjusting pricing. Breaking products into groups and targeting them at specific demographics can also increase this percentage, as can making complementary products. Another strategy is improving the product or service itself, which can attract customers from competitors, though this can be difficult, so many companies try to grow along with a growing market rather than trying to take business from the competition.

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Discuss this Article

anon283268
Post 46

I am Ajay and I work in the hotel industry. What is the share market and how do I invest in the share market and earn profits in the share market? How much money should I invest in the share market?

anon189861
Post 43

What does it mean when the total market share is downsizing and yours is growing?

anon161061
Post 41

i have Rs 20,000. is it enough to invest in the share market?

anon160745
Post 40

A lot of global tensions are going on at this time. Japan is expected to pull out its money from the global market as they want to revamp their country now. In the current scenario anything can happen in the share market. Investors are advised not to panic and stay invested. Only safe traders and investors should exit their long positions on every high and one can use every decline as an opportunity to enter the market again.

anon156940
Post 39

i am nibedita n. i want to know in very simple word that what is company share, how to get shares and profits from a company if i get into that? Tell me the procedures.

anon150414
Post 38

Seems like it’s a nice blog. So let us also add something useful in it. Trading in volatile market can be very fruitful also if we follow technical levels closely. It’s a common saying that stock market can change fortune in either way. But now the question is how to earn money from the Indian stock market.

Traders are advised to strictly follow technical analyses and investors can follow fundamental analysis. Many analysts say it’s not wise to follow technical and fundamental analysis together. But we say what the problem is if one does so? As more knowledge will add up things will not have any negative impact.

anon144532
Post 36

which type of sensex increases or decreases? how do I calculate sensex?

anon137505
Post 34

I am studying in b.b.m and i want to invest money in share market and i have only 10000r.s so please give me a idea how i can invest, and is the amount enough for starting the business?

Shiv Narayan
Post 32

tell me about market share and how it works.

anon132744
Post 31

i am student of b.com. what is indian share market, nse and bse?

anon127062
Post 29

how would you answer "market share does not always equate to competitive success?"

anon123694
Post 28

please tell about how to improve the market share.

anon123690
Post 27

You have been recently hired as a marketing manager in a shampoo manufacturing organization. There is only 20 percent market share of your organization while your competitors have 45 percent and 35 percent market share respectively. The CEO has given you the target at the time of joining this organization that market share should be 40 percent within a year.

How do you upgrade your market share?

anon120464
Post 25

I am a Bcompt student and want to find out the market share of my new business idea of a Kids party venue.

anon114561
Post 24

I m a BCom student. i want to know the share market and how it works, and how they calculate the share price.

anon109171
Post 23

I am an mba student and i want to know detailed information about how share marketing is done.

anon100471
Post 20

i am an it student.i want to know what is market share and how to invest in it. how do you rate it.

Lim Ching
Post 19

why is the company share price always lower than the market share price?

anon74708
Post 17

How do you calculate the cost of increasing market share, or determine what your current share has cost you in real dollars. Do you have a formula?

anon71073
Post 16

I am an MCS student. i just want to know about what is the share market? how to invest the money and how to get profit?

anon69879
Post 15

Great information. now I understand market share, but now how do I calculate mine? Where do you find what the value of the overall market is to be able to calculate my percentage?

anon69416
Post 14

I am Joseph working for smile electronics pvt ltd, and i wanted to know about share marketing. what is share marketing and how to invest the money and how to get the profit? with regards, Joseph

anon68320
Post 12

I am an engineering student. i just want to know about what is the share market? how to invest the money and how to get profit?

anon61087
Post 8

i am student of engineering. i wanted to know in simple words what is share market and how to invest the money. please guide me.

anon51675
Post 7

I need more information.

maxwelldon
Post 6

Market share is just a position of the company on the market (in percentages).

anon36350
Post 5

what is the meaning of this in simple words?

anon15155
Post 4

Question 1: Market share in all 8 firms in an industry are 50%, 20%, 14%, 6%, 4%, 3%, 2%, and 1%. What is the Herfindahl index?

Question 2: If an industry consists of only 2 firms with equal market shares, then what is the Herfindahl index? What is there are 3 firms in an industry with 50%, 40% and 10% of the market, what is the Herfgindahl index?

anon13940
Post 3

Does market share mean the portion of a customer's spending that a business demands; a portion of spending within an industry that a business commands; or the portion of the market that a business commands?

shaimaasaoud
Post 2

For a company that prices its product considerably higher than the market average, which measure would be greater?

(A) Value market share

(B) Volume market share

(C) They would be equal

(D) Impossible to tell without actually calculating each

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