What is market share analysis?

Understanding your company’s position within its market is important if you want to be successful in the long term. That’s where market share analysis comes in.

This figure represents the total percentage of sales in the industry earned by a particular company within a defined time period. It provides insight into how well your company is doing compared to others in the industry.

Ultimately, by conducting a market share analysis, you can better understand how your business stacks up against others. You can also use it to reveal strengths and weaknesses in your business.

Here’s everything you need to know about this valuable metric.

The process of calculating market share is straightforward.

First, you need to figure out which time frame you’d like to analyze. Business owners often want to assess their quarterly market share to examine seasonal trends or short-term performance. However, you might also want to gather annual data to examine performance over a full business cycle. The time frame you choose will depend on the goals you’ve set.

Next is the data collection phase. You’ll need to calculate the total market sales figure by adding together the sales from all companies in your market for the defined period. This information typically comes from industry reports, research firms, and government statistics. You also need the total sales generated by your company in that same period.

Ultimately, your company’s market share percentage is equal to the company’s sales divided by the total market sales. Here’s the formula to follow:

Market share (%) = (your business’s revenue/total category revenue) x 100

The following tips are worth considering to ensure the most accurate analysis possible:

• Data accuracy: ensure the data you collect is accurate and up-to-date for a reliable market share calculation.

• Market definition: clearly define your market so that you don’t include irrelevant sales data. The market can vary based on geography, product lines, or industry segments.

• Comparative analysis: regularly calculate market share to track changes over time and understand your company’s performance relative to competitors.

Market share analysis as a metric can offer insight into your business’s growth trajectory and current and future sustainability. The strategic decisions you make with this data can give you a competitive edge.

Competitive comparison

Market share analysis helps you compare your performance with that of your competitors, allowing you to spot strengths and areas requiring improvement.

You’ll determine which company or brand has the highest market share. Whether that’s your business or another business, you’ll be able to position yourself accordingly.

You’ll also be able to set realistic goals for your business and map out desired improvements. If you’re the leading brand, you’ll outline a defensive strategy. If you want to take on the market leader, you’ll create an active strategy.

Strategic planning

The insights you derive from a market share analysis can help you develop a strategic plan that informs important decisions about your approaches to market entry, product development, business expansion, and marketing.

Performance tracking

You can track your business’s performance by assessing your market share. For instance, you can evaluate your sales performance and the effectiveness of your marketing campaigns, which will reveal the resultant increase (or decrease!) in market share. You’ll be able to adjust your strategies and set measurable objectives based on this data.

Resource allocation

With accurate market share analysis tools, you can optimize how you distribute your budget. The analysis can also help you invest in areas that yield higher returns and focus resources on market segments with larger growth potential.

Several factors can impact the accuracy and relevancy of a market share analysis. If you understand these factors, you’ll have an easier time interpreting data correctly.

Market size

A market’s size will certainly influence your calculation.

If the market is growing, it may lead to increased sales for everyone in the market (yourself and your competitors). Conversely, if the market contracts, sales will drop for everyone. This can make it challenging to determine if your declining sales are due to:

1. Increased competition, where competitors are taking a larger share of the overall market

2. An overall industry downturn, where the size of the market is shrinking for everyone

Competitor number and strength

The number of competitors plays a role in determining your market share, but so does the strength of each competitor. For example, your sales might remain consistent, but a new competitor entering the market may fragment it.

You might also see changes based on competitors’ changes to marketing and pricing strategies, for instance.

Consumer preferences

Consumers also impact your company’s market share. For instance, consumers may switch to another company if you no longer offer the products they used to buy or if you change a major component of your product.

Trends can also cause market share fluctuations. Consider the growing trend toward eco-friendly and sustainable products. If a competitor starts offering more environmentally friendly options but your company doesn’t, you might lose customers who prioritize sustainability.

Economic conditions

The conditions of the economy also impact your market share. Economic downturns generally reduce consumer spending, increasing the market share of companies offering low-cost budget products or services as consumers seek to save money. An economic boom, on the other hand, will do the opposite, driving the share of premium, high-end brands and businesses.

Rising inflation and interest rates will also change market dynamics, generally shrinking the size of the market as a whole—or, again, driving consumers toward budget, low-cost options.

Market share analysis provides insight into different aspects of performance. When you understand the types of market share analysis reports, you can better evaluate your competitive position.

Revenue market share

Revenue market share is calculated based on your company’s revenue as a percentage of the total market revenue. This metric provides insight into the company’s financial strength compared to that of competitors.

If you have recently introduced new products or services, this metric helps assess how well these offerings are generating income.

Volume market share

Volume market share is based on the number of units your company has sold as a percentage of the total units sold within the market. This metric focuses on the quantity of products sold rather than the revenue those products have generated.

This figure helps you understand the popularity of your products and services and how well your new offerings have penetrated the market. However, it doesn’t account for the profitability of those units sold. A high-volume market share may not translate to high revenue if the products are sold at low prices or with thin margins. Additionally, it doesn’t provide insights into your company’s overall financial health.

Value market share

The value market share considers the volume of products your company has sold and the prices of those products.

This figure offers a comprehensive view of your business’s market position by combining both sales volume and pricing strategy. It can help you understand the value of your products and services and how much revenue your sales are generating. This can be particularly useful in assessing the effectiveness of premium pricing strategies and identifying high-margin products.

Customer market share

The customer market share is a value based on how many customers your company has compared to the total market. It helps you determine how well your customer acquisition and retention strategies are working.

This metric differs from the others because it focuses more on customers than product volume or revenue.

You can incorporate several types of strategies into your company’s plans to increase your market share. Consider the following:

Product innovation

Product innovation introduces new or improved products to the market. This strategy allows you to differentiate yourself from competitors and attract new customers.

You can incorporate product innovation into your business model by creating new products that fulfill your clients’ needs, making improvements to existing products, and personalizing products based on customer preferences.

Market penetration

You can use market share analysis to strategize market penetration. For instance, this metric may help you develop promotional campaigns, find new distribution channels, and optimize your sales team.

Customer retention

Market share analysis can help you focus on keeping the customers you currently have—not acquiring new ones. This strategy involves a focus on customer service, loyalty programs, and improvements based on feedback.

Competitive pricing

The data you gather may also help you adjust your prices so they are more competitive. For example, you may focus on reducing prices without compromising profitability.

You’ll also work in value-based pricing and bundling to attract customers looking for better value. Value-based pricing involves setting prices based on the perceived value of your product or service to the customer rather than solely on cost. This strategy can help you charge higher prices for products that offer superior benefits or solve significant problems for customers.

You can also consider bundling, which attracts customers looking for better value by offering a combination of products or services at a reduced price compared to buying them separately.

Market share analysis isn’t always a simple process. It presents several challenges that can reduce the accuracy and reliability of the results.

Data accuracy is one of the biggest challenges you might face. Some of the data you uncover might be incomplete, outdated, or come from an untrustworthy source. Ensuring you use reliable market research—such as reports from reputable industry analysts like Gartner, Forrester, or Nielsen, government statistics, and academic journals—and multiple data sources (rather than a single source) can give you confidence in your outputs.

You might also note changes in market dynamics that impact your data. For instance, technological advancements and changes in consumer behavior may skew the information you receive. Regularly update your market share analysis and integrate external factors like economic indicators, technological advances, regulatory changes, and social and cultural trends into your research.

Several tools are available to help you find accurate, reliable data. Market research reports provide valuable insights into industry trends and market dynamics. These reports come from reputable market research firms.

Data analytics software helps businesses analyze large volumes of data and even create visual depictions of market share data. These tools can offer advanced analysis based on raw data.

Surveys and polls are also effective tools for collecting data from customers and other market participants. While surveys and polls are not the best methods of gathering insights for every project, you can gather some information about market trends and consumer preferences that will help contextualize your market share calculation.

To win market share, start by understanding your target market thoroughly. Research and analyze your target audience to gain insights into their needs, preferences, and pain points. Use this insight to tailor your products or services to better meet their demands.

Differentiating your offerings is another crucial step. Develop unique selling points (USPs) that set your products or services apart from the competition, and highlight these USPs in your marketing efforts to attract customers seeking specific benefits.

Improving the quality of your products or services should be a priority. Investing in quality enhancements can lead to increased customer satisfaction and loyalty, which in turn helps you gain a competitive edge and win market share.

Employing competitive pricing strategies is also key. Analyze competitors’ pricing and adjust yours to offer better value, considering approaches like value-based pricing, discounts, or bundling to attract price-sensitive customers.

By focusing on the areas outlined above, you can more effectively position your company to capture a larger share of the market.