Market share refers to the percentage share of a particular market that is captured by a company, business, or organization, either as a whole or for a particular product or service being offered. A market share study is a piece of research undertaken to measure the numerical figure of the percentage share (for the company or product/service), and is a subset of market research study. A market share study is typically conducted in conjunction with (or a sub-component) market sizing study, but can be conducted independently as well if market size information is readily available. The market share is typically determined on an annual basis, but periodic tracking of market share is also feasible if an operational process can be established based on an appropriate research design (i.e. who, how, and where to obtain required data).

Market Share as a Yardstick of Competitiveness

Market share data are generally difficult for companies to gauge, due to the limited visibility that they have about their competitors, such as the existence of smaller players, entrance of new players, and competitors’ sales performances. However, most companies agree that market share data are critical to their strategic planning and growth direction. A stagnating market share over a period of time may signal competitive disadvantages across one or more facets of the business, including products, services, or within the marketing mix. In addition, market share information gives context to the company’s revenue and growth performance—a company’s revenue may be growing but still lose market share, due to higher growth performances delivered by its competitors. Companies who are established in the market typically resort to “having a feel” of the market and their market ranking, particularly in stable markets. However, most markets are experiencing rapid changes with threats of new, non-traditional entrants, and internal “guesstimates” of market shares may turn out to be severely inaccurate.

Market share data can be obtained through a market share study, or via the construction of a market share model which is employed over time. The decision between the two depends on the marketing problem. A market share study is conducted where the marketing problem tends to be more exploratory in nature, and several unknowns need to be identified, tested, and evaluated in the course of arriving at the market share figures. A market share model is constructed where the marketing problem tends to be more descriptive in nature, and consistent tracking and sourcing of data need to be established. In some instances, a market share model may only follow once a market share study has been completed, with a research approach and design that has been tried and tested put in place.

Market Share Approaches

Market shares are typically expressed in one of two denominations:

  1. Market share expressed as a percentage share of market value.
  2. Market share expressed as a percentage share of market volume.

As a percentage share of market value, the company’s market share is derived based on the size of the company’s monetary value compared to the market’s total monetary value. Broadly speaking, this can be obtained by dividing the company’s total revenue for the year, by the market’s total monetary value for the year.

As a percentage share of market volume, the company’s market share is derived based on the number of products/services sold compared to the market’s total number of products/services consumed. The unit of volume is flexible, but is commonly expressed as weight (e.g. kg, tonne, etc.) or unit counts (e.g. SKU packs). The market share expressed as a percentage share of market volume can be obtained by dividing the company’s total quantity of products/services consumed (in unit terms) for the year, by the market’s total apparent consumption of the particular product/service (in the same unit terms) for the year.

The market shares expressed in value and volume terms are often dissimilar and rarely coincide. As such, companies should take both market share representations into account prior to making a strategic marketing decision, as they carry subtle and different implications for strategic decision making. A company competing on market penetration of a certain product/service, or increasing the number of customers that it has, may find the market share in volume terms a more relevant metric; whereas a company focusing on maximizing the lifetime value of its customers (e.g. companies in the luxury products/services market) may find the market share in value terms more relevant for measuring competitiveness. Examining both market shares in value and volume terms as a pseudo paired variable often yield additional competitive insights as well, particularly where regional breakdown is feasible.

In addition to denomination, research managers should also take the following factors into account when undertaking their market share exercises:

  • Base market size. The base market size of which the company’s market share is measured against needs to be selected and determined beforehand. Measuring market share against the total addressable market and serviceable available market yields largely different results, as well as determining the research designs that follow.
  • Number of competitors. While it may be reasonable to attempt to include all competitors into the scope of the market share research, this is a steep hill to climb from a practical standpoint. Instead, focus on competitors who, cumulatively, combine to capture the lion’s share of the market (e.g. 80% or more).
  • Base assumptions. As with all market research findings, market share information are built upon models that approximate the real world. Invariably, certain assumptions will have to be established, particularly in variables related to retail prices, purchased prices, and consumption patterns. Ideally, a survey should be carried out to validate the assumptions through statistical tests (or hypothesis testing) prior to establishing market shares, but sometimes, resource limitations may not allow for this.
  • Real-world verification. Once the market share model has been constructed, the reliability of the model should be tested by comparing the findings of the model to real-world data. In-depth interviews with key persons within the industry should be conducted to obtain a sample distribution of market share data, measured across the same competitors included in the market share model. The model data and sample data can then be tested for goodness-of-fit, whereby the findings will provide a gauge for the reliability of the market share model.