Market Share Analysis

Market Share Analysis Explained

Market share analysis is the process of calculating the market share of a particular company with respect to a particular industry, sector or its competitors. It is a common technique to deduce a company’s position in the market. Every business has some level of competition in the market; if there is no competition, the business will enjoy a monopoly. However, since there are competitors, it helps a company understand how well they are doing in the market compared to others.

The entire process of market share analysis is divided into two parts, the market share is expressed in percentage through a quantitative approach using either total sales or revenue of the company and its competitors, whereas the analysis part begins once the market share is determined. Companies then use the percentage value to compare and collate it with different historical data, figures and metrics to analyze and define key insights based on future company decisions.

There are mainly three types of market share analysis. Absolute, relative and comparative, each one has its quantitative approach coupled with advantages and disadvantages. For any company, irrespective of its size and nature, working on its market share is crucial as it helps them identify which products have high sales and which ones need improvement; it assists in determining the allocation of marketing resources. A company’s market share can never be equal to or higher than the entire industry’s or competitors’ market share because they all together contribute through sales and revenue to form it.

How To Do?

The main steps involved in conducting a market share analysis are –

• Defining the market segment or industry could be based on factors such as product or service category, geographic location, customer preferences or other criteria.
• Identifying the right competitors that match the underlying company’s product or services could be direct competitors or firms that are selling similar products or offering identical services.
• The next step is to calculate the underlying company’s sales or revenue; this could be deduced from financial statements or sales data.
• Calculating the total market size may require government data, industry research and other resources.
• Once you have all the information, two main formulas can be used alternatively –

Market share analysis = (Company’s total sales/Total industry sales) x 100

Market share analysis = (Company’s total revenue/ Total industry revenue) x 100

• Once the market share is deduced, the company can use it further to compare, and analyze different aspects as to whether the market share has grown, declined, or any other significant changes and so on.

Examples

Below are two examples of market share analysis –

Example #1 

Suppose in 2023, a battery company made a total sales of $4.5 million, and the total sales made by all its competitors was $12.6 million.

Based on these values, the market share for the battery company in 2023 would be –

(4,500,000/12,600,000) x 100 = 35.71%

But the same company in 2024 made a total sales of $9 million; in 2024, all of its competitors made a total sales of $15.3 million.

This time, the market share for the battery company in 2024 would be –

(9,000,000/15,300,000) x 100 = 58.82%

Comparing both the market share values of 2023 and 2024, it is clear that the company has shown immense growth and nearly doubled its market share in just one year. Again, this is a simple example, but many other market factors are to be considered in the real world.

Example #2

IPhones have increased Apple’s market share in the United States to around 55.91%. Apple has always been a leading technology company, especially in the smartphone division and each day, millions of iPhones are getting sold only to let Apple maintain its dominance. This market share was recorded in July 2024, which also indicates that more than half of the US smartphone users have an iPhone.

As of July 2024, Samsung has a market share of 24.02%, while the rest belongs to other small and new mobile manufacturing companies. The simple factors that positively impact Apple’s market share in the US are brand loyalty, retail presence, product innovation, ecosystem-centered services, marketing and promotion.

Advantages And Disadvantages

The advantages of market share analysis are –

• It helps a company, market analyst, or investor understand the market competition.
• Companies, by calculating market share analysis, make strategic decisions and focus on a particular segment of the business.
• The management can decide on which product or service they should focus on and which ones they can discontinue.
• Customer preference can be determined using the right market share analysis technique.
• A company can determine if it’s losing or gaining market share based on the market share analysis.

The disadvantages of market share analysis are –

• Market share analysis is quantitative and does not include qualitative factors.
• Most competitors are not direct competitors but have business divisions; hence, it is not fair to include their sales in calculations.
• Consistency in data and inaccuracy in financial figures can disrupt the market share value, leading to wrong insights.
• Another disadvantage is data interpretation; often, it happens that management incorrectly interprets data, not considering certain elements that affect it.

Frequently Asked Questions (FAQs)