What Is Market Share?
Companies increase market share through innovation, strengthening customer relationships, smart hiring practices, and acquiring competitors. A company's market share is the percentage it controls the total market for its products and services.
Understanding Market Share
Market share is calculated by measuring the percentage of sales or percentage of units a company has in the overall market. Using the percentage of sales method, if a company has $1 million in annual sales and the total sales for the year in its industry is $100 million, the company's market share is 1%. Under the percentage of units method, a company that sells 50,000 units annually in an industry where 5 million units are sold per year also has a market share of 1%.
A higher market share puts companies at a competitive advantage. Companies with high market share often receive better prices from suppliers, as their larger order volumes increase their buying power. Also, increased market share and greater production go hand-in-hand, with the latter decreasing a company's cost to produce an individual unit due to economies of scale.
How Can Companies Increase Market Share?
Increasing Market Share
Innovation is one method by which a company may increase market share. When a firm brings to market a new technology its competitors have yet to offer, consumers wishing to own the technology buy it from that company, even if they previously did business with a competitor. Many of those consumers become loyal customers, which adds to the company's market share and decreases market share for the company from which they switched.
By strengthening customer relationships, companies protect their existing market share by preventing current customers from jumping ship when a competitor rolls out a hot new offer. Better still, companies can grow market share using the same simple tactic, as satisfied customers frequently speak of their positive experience to friends and relatives who then become new customers. Gaining market share via word of mouth increases a company's revenues without concomitant increases in marketing expenses.
Maintaining Market Share
Companies with the highest market share in their industries almost invariably have the most skilled and dedicated employees. Bringing the best employees on board reduces expenses related to turnover and training, and enables companies to devote more resources to focusing on their core competencies. Offering competitive salaries and benefits is one proven way to attract the best employees; however, employees in the 21st century also seek intangible benefits such as flexible schedules and casual work environments.
Lastly, one of the surest methods to increase market share is acquiring a competitor. By doing so, a company accomplishes two things. It taps into the newly acquired firm's existing customer base, and it reduces the number of firms fighting for a slice of the same pie by one. A shrewd executive, whether in charge of a small business or a large corporation, always has his eye out for a good acquisition deal when his company is in a growth mode.