Firms are always concerned with the size of the potential market for their products or services and the proportion of that market they actually reach—often referred to as a company's market share. Market share is the percentage of the total market (or industry) sales made by one firm. As a formula, Market Share = Firm's Sales ÷ Total Market Sales. Share can be reflected as either percentage of sales dollars, percentage of units sold, or percentage of customers. Percentage of sales dollars is the most common reference.
Market share is one of the most commonly quoted measures of success in any industry. To correctly determine market share, one must clearly define the market. Having a small share of a large market can be as profitable as a large share of a small market. A producer of leather horse saddles must determine if his market is made up of saddle sales, equestrian sales, or all leather goods sales. Obviously, his market share in the saddle industry is much larger than his share in the leather goods market.
There are two sources for measuring market share: competitors and consumers. Surveying competitors gives a more accurate and reliable picture of market share. It is possible to interview 100 percent of competitors, but not all consumers. To get a reliable figure from consumers, a large number of people would have to be interviewed. For many industries, sales and market share figures may already be compiled by government agencies, trade associations, or private research firms.
Market share defines the roles played by various firms in an industry. The firm with the largest market share is the market leader. The market leader usually has the highest marketing expenditures, distribution, price changes, and new product innovations. Market challengers are the firms working to increase their market share. Firms in an industry that are content with their share of the market or doing little to increase sales are considered the market followers. The market niche brand is the player that targets its business toward serving smaller, overlooked segments that are often ignored by the larger players. The niche marketer can be very profitable, opting for high margins over higher volume.
The leader must constantly monitor the market because the challenger is constantly trying to take away market share. The market leader has three options to keep its market position: expand the total market, protect market share, or expand market share. Markets can be expanded by creating more usage, new uses, or new users. Leaders can protect market share by monitoring their position and rushing to remedy any weaknesses.
Continuous innovation is the best way to protect market share. Another way to protect market share is to remove competitors through acquisition or merger. This strategy has become more and more popular among large firms, resulting in an increasing level of corporate consolidation since the mid-1990s.
Maintaining market share often requires constant innovation and change. When leaders become complacent with their products or services, it becomes easier for the challenger to make progress. A 2007 report indicated that both Coke and Pepsi were seeing their dominant market shares slip as health-conscious consumers switched to vitamin-infused energy drinks and bottled water. In response, both companies announced new products to chase that new trend. In large markets such as this, small increases or decreases in market share can translate into very large changes in sales; one point of market share can be worth hundreds of millions of dollars.
The market challenger must attempt to gain market share from the leader. The challenger must have some sustainable competitive advantage to attack the leader's market share. The challenger can attack other competitors through a direct attack by altering price, promotion, or distribution, or indirectly by diversifying or catering to underserved segments. Followers must keep quality high and prices low to maintain their positions. As Armstrong and Kolter point out in Principles of Marketing, the market follower must “find the right balance between following closely enough to win customers from the market leader but … at enough of a distance to avoid retaliation.”
Niche marketers have many options available to them. The company must find a niche that is safe and profitable. It must be large enough to sustain growth but small enough that it does not look attractive to the market's larger players. Targeting multiple niches is an option that offers the niche marketer a higher chance of survival because the firm is not dependent on one segment.
Across segments, attempts to affect market share take place across the four “P's” of the marketing mix: product, price, place, and promotion. However, there are instances in which increasing market share is not necessarily desirable. The costs to increase production or improve the product may not be covered by the incremental profits.
Market share is easily understood by most managers, employees, and shareholders; therefore, it is often used as a primary measure of success. It is critical to understand market share, how it is used to identify market participants, and how the different participants use it to determine their market strategy.
SEE ALSO Generic Competitive Strategies
Armstrong, Gary and Philip Kotler. Principles of Marketing. 12th ed. Upper Saddle River, NJ: Prentice Hall, 2007.
Davenport, Todd. “Focusing on Share? Wise Up, Analysts Say.” American Banker, 1 November 2004: 9.
Kavilanz, Parija B. “Coke, Pepsi lose ground for 2nd year.” CNNMoney.com, 8 March 2007. Available from: http://money.cnn.com/2007/03/08/news/companies/softdrinks_sales/index.htm.
“Marketing: Market Share.” QuickMBA.com. Available from: http://www.quickmba.com/marketing/market-share/.
"Market Share." Encyclopedia of Management. . Encyclopedia.com. (May 25, 2017). http://www.encyclopedia.com/management/encyclopedias-almanacs-transcripts-and-maps/market-share
"Market Share." Encyclopedia of Management. . Retrieved May 25, 2017 from Encyclopedia.com: http://www.encyclopedia.com/management/encyclopedias-almanacs-transcripts-and-maps/market-share
A company's market share is the percentage of all products in a category that that company sells. Thus market share is calculated by dividing a company's sales by the total sales in a category. If the company sells all the product in a market, it will have a 100 percent share—and it will have a monopoly. Market share is typically measured at fixed intervals like once a quarter or once a year.
CALCULATING MARKET SHARE
All companies with reasonable record-keeping practices know what their own sales in a particular product or services category are during any selected period of time. The difficulty arises in knowing what total sales are. Unless data on total sales are collected by the government in its economic census activities every four years (years ending in 2 and 7)—and by sampling surveys in the years in between—or unless sales data are cumulated by an industry association or by regulatory agencies (e.g., electrical power generation) total sales may be impossible to determine—and so will a company's market share.
The granularity of data on product sales tends to be rather coarse, meaning that data on canned vegetables may be available but data on canned artichoke hearts will be very difficult to get. If a product moves in different size categories, detail on packaging size categories is rarely available. For this reason major durable goods categories like autos or aircraft are easier to track than custom jewelry or specific clothing items. Services are even more difficult to measure. It is possible to get a count of open-heart surgeries, but data on home-care delivery will forever be rather approximate.
Indirect measures are often employed to get at total sales. Examples of this are tracking "installed capacity" in such industries as cement, paper, oil refining, and power generation. Data on capacity must, of course, be refined by gathering information on whether on capacity utilization. If utilization is running at 40 percent, total capacity must be discounted. Hotels have a determinable number of rooms—but occupancy is what counts.
These measurement problems serve as a general indicator concerning the nature of the "market share" measure. It is almost always a very rough measure—and in most categories the underlying factual basis is equal parts data and guesswork.
HOW MARKET SHARES ARE USED
Companies attempt to calculate their own shares of the market in attempts at self-evaluation. They also try to obtain share information on their competitors. Market share, of course, is a measure of relative strength. And, as it changes over time, it is an indicator of progress or regress. Companies "gaining share" are reassured—unless competitors are gaining shares faster; a company that is "losing share" is getting a strong hint that something is amiss. In most large corporations where formal annual planning is practiced, managers routinely assemble market share data on their competitors and calculate their own as part of planning. A long and persistent loss of market share has been the sad accompaniment of the decline of domestic auto makers.
Market share being a measure of strength, such data are used in economic analysis to evaluate industries as a whole. One such measure is concentration. Industry concentration is calculated by ranking all major competitors on the basis of market share. The shares of the top companies are summed. These may be the top three, five, or more companies. If the total share of the leaders is high, the industry is said to be concentrated. Where concentration is very high, e.g., where the top three have 60 percent or more of the market, entry industry is difficult, competition is low, and pricing will be high. If the two ten companies have less than 10 percent share in the aggregate, entry will be easy. Concentration is, of course, also an indicator of capital intensity or monopoly over some production art available through control of patents. Market share measurements are thus used in government evaluation of mergers and acquisitions in order to determine whether or not antitrust laws would be violated by proposed combinations.
SHARE AND SMALL BUSINESS
Market share is rarely used as a measure in small business for the simple reason that the data necessary to obtain reasonably precise share data on competitors are rarely available. Small businesses tend to use other and more indirect ways of tracking how they're doing. They watch the competition and collect data from vendors and customers.
Lazich, Robert S. ed. Market Share Reporter. Thomson Gale, 2006.
"Market Report: Present Perfect?." In-Store. 10 April 2006.
McCloughan, Patrick and Patrick Abounoori. "How to Estimate Market Concentration Given Grouped Data." Applied Economics. 20 May 2003.
"The Top 25 by Sector." Forbes Global. 17 April 2006.
"Market Share." Encyclopedia of Small Business. . Encyclopedia.com. (May 25, 2017). http://www.encyclopedia.com/entrepreneurs/encyclopedias-almanacs-transcripts-and-maps/market-share
"Market Share." Encyclopedia of Small Business. . Retrieved May 25, 2017 from Encyclopedia.com: http://www.encyclopedia.com/entrepreneurs/encyclopedias-almanacs-transcripts-and-maps/market-share
Although space commercialization in the United States began as far back as 1964, commercial initiatives did not begin to build momentum until the early 1980s. Worldwide, companies such as Arianespace in France and RSC Energia in Russia provide strong competition in the commercial marketplace to U.S. contractors such as Lockheed Martin Corporation. For the most part, large contract companies still share a large segment of the commercial marketplace.
The U.S. Department of Commerce reported total U.S. commercial space revenues in 1988 of an estimated $1.8 billion, primarily in the area of satellite communications and related ground support. This number doubled in 1990, with the United States retaining about 60 percent of the world market in communications satellites. By 2000, other services, such as remote sensing (photographic imaging from space), were still in their infancy commercially, but the market for such services was expected to grow substantially by 2005. The market for satellite imagery in the United States had already grown from a $39 million industry in 1988 to $139 million in 1998. The Carnegie Endowment for International Peace projected that remote sensing revenues would reach $420 million by 2005.
According to Facts and Figures: The European Space Industry in 1998, European companies generated $5.1 billion in total revenue in 1998, comprising 47 percent of the total European market. This was an increase from 1996 when government programs constituted two-thirds of the European market. Worldwide, the French consortium Arianespace held approximately 50 percent of the total market for launching satellites in 1988. Proven rocket families, such as the French Ariane, the U.S. Delta, and the Russian Proton, still maintain great success in the transportation industry. New partnerships by known industry leaders, such as the Sea Launch partnership of Energia and Boeing, are creating greater competition in the marketplace.
Early in 2000, several media agreements were signed to provide wider public access to space through the Internet and high-definition television. The National Aeronautics and Space Administration inked a $100 million deal with an Internet start-up to create high-definition images from the space shuttle and the International Space Station (ISS), while the U.S. company Spacehab Incorporated signed with Russia's RSC Energia to form a commercial partnership to utilize future resources on the ISS. Other historical milestones are also being achieved commercially, such as the successful mission of two Russian cosmonauts to the space station Mir beginning in April 2000. This was the first privately funded, piloted space mission in history.
In 1999, 128 spacecraft were launched worldwide, with a total of seventy-six, or 59 percent, from commercial companies. Total space revenues for 1999 reached $87 billion, with the International Space Business Council estimating growth of 93 percent through 2005.
History has shown that one of the biggest hurdles for space commercialization in any country is a government's willingness and ability to implement policies to promote and assure commercial participation and success. Such cooperation will ensure diversity and competition in future technologies. Because of the complexities of space technology, new products influence such issues as national defense and international import and export policies. These issues will continue to influence progress and profit in space commerce.
see also Legislative Environment (volume 1); Marketplace (volume 1); Regulation (volume 1); Space Industries (volume 4).
Neil Dahlstrom and Jeff Manber
Eurospace. Facts and Figures: The European Space Industry in 1998. Paris: Pierre Lionnet, 1999.
Florini, Ann M., and Yahja A. Dehqanzada. Secrets for Sale: How Commercial Satellite Imagery Will Change the World. Washington, DC: Carnegie Endowment for International Peace, 2000.
International Space Business Council. State of the Space Industry, 2000. Arlington, VA:Author, 2000.
U.S. Department of Commerce. Economics and Statistics Administration and Office of Space Commerce. Space Business Indicators. Washington, DC: Author, 1991.
"Market Share." Space Sciences. . Encyclopedia.com. (May 25, 2017). http://www.encyclopedia.com/science/news-wires-white-papers-and-books/market-share
"Market Share." Space Sciences. . Retrieved May 25, 2017 from Encyclopedia.com: http://www.encyclopedia.com/science/news-wires-white-papers-and-books/market-share