What is Market Share?
Market share represents the percentage of an industry, or market's total sales, that is earned by a particular company over a specified time period. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors.
Understanding Market Share
Breaking Down Market Share
A company's market share is its portion of total sales in relation to the market or industry in which it operates. For example, if a company sells $100 million in tractors per year domestically, and the total amount of tractors sold in the U.S. is $200 million, the company's U.S. market share for tractors would be 50%.
The Importance of Market Share
Investors and analysts monitor increases and decreases in market share carefully as this can be a sign of the relative competitiveness of the company's products or services. As the total market for a product or service grows, a company that is maintaining its market share is growing revenues at the same rate as the total market. A company that is growing its market share will be growing its revenues faster than its competitors.
Market share increases can allow a company to achieve greater scale with its operations and improve profitability. A company can try to expand its share of the market, either by lowering prices, using advertising or introducing new or different products. In addition, it can also grow the size of its market size by appealing to other audiences or demographics.
The calculation for market share is usually done for specific countries, such as a Canada-only market share or U.S.-only market share. Investors can obtain market share data from various independent sources, such as trade groups and regulatory bodies, and often from the company itself. However, some industries are harder to measure with accuracy than others.
Example of Market Share
All multinational companies measure success based on the market share of specific markets. China has been an important market for companies, as it is still a fast-growing market for many products. Apple Inc., for example, uses its market share numbers in China as a key performance indicator for the growth of its business. Apple's market share for China's smartphone market fell from 13.6% at the end of 2015 to 9.6% for 2016 despite the overall Chinese smartphone market growing by 9% in 2016. Apple sales were down in China that year as it failed to launch a new iPhone, and then it further lost market share as a number of mid-range smartphones were launched by Chinese competitors OPPO and vivo.