What Is Market Share?

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What is Market Share?

Market share is a brand or retailer’s percentage of products and/or services sold in the marketplace over a given time period. While there are many tools to calculate market share, there are two types of share metrics typically used: Dollar Share (brand/retailer’s dollars sold divided by the total dollars spent) and Unit Share (brand/retailer’s number of units sold divided by the total number of units sold).

Why is Market Share Important?

Market share helps to measure the performance of a company relative to the rest of the market. It is important when you need to understand how the market is changing relative to your increase or decrease in sales. If you only analyze sales numbers and there is an increase of 5% over the last year, but the size of the market increased 10%, then you are growing slower than the rest of the market (ROM) and competitors are gaining share.

How to Calculate Market Share

The two main types of Market Share metrics are:

  • Dollar share (your dollars sold / total dollars spent)
  • Unit share (your # units sold / total # units sold)

Dollar share metrics are especially useful when you are calculating share for a category containing many price points. For example, if you are measuring lumber, it’s difficult to drill down into the dimensions of each stick of lumber sold. Measuring lumber shares have the additional complication of quantity sold. In this case, it may be best to determine the total spent on the category and calculate share for all lumber. This ensures that a $100 structural beam is not equivalent to a $2 two-by-four.

Measuring unit share is valuable when you are primarily interested in the number of units sold. For example, if you are interested in measuring total volume or the number of units for your product across retailers, focusing on unit share makes the most sense.

 

How to Collect Market Share Data

There are 2 metrics needed to calculate market share: 1) Sales of the company you’re calculating and 2) total industry sales. If you’re calculating your own shares, you know sales of the company. Calculating total industry sales may be a bit more challenging. There are four sources for industry sales, each may have its own strengths.

  • Consumer Data
  • POS / EDI data
  • Government data
  • Association data

Consumer Data is a reliable source that bridges consumer characteristics and behavior to sales. When used to extrapolate to the entire industry, consumer data must be representative of the entire US population. A high quality consumer panel and sophisticated weighting must to be used to ensure the data is valid. When collected well, consumer data can also be used to sample the population to determine where a population spends its money. Using this source, it is not necessary to have data from the company being measured.

Point of Sale Data If point of sale data is comprehensive, it can serve as an invaluable resource for marketing by showing which features and SKUs are selling best and at what price point. A common weakness of point of sale data is in its representation. To be representative of the entire market, the majority of the market must contribute to a point of sale system. Without adequate representation, one may attempt to calculate share based on a unrepresentative subset of the market.

Government Data is a crucial resource because it provides sales information by retailers of different types, sales to non-residential construction, producer and consumer price indices, housing permits, housing starts and completions. A major drawback to government data is it’s timeliness. It is not uncommon for some sources to be published years after being collected. Additionally, due to privacy, government data may be too high level for some analysts.

Industry Association Data is sales information collected from member companies and aggregated into an estimation of total industry sales. This data measures sales in terms of shipments from manufacturers to their customers on yearly, monthly and weekly bases. Industry association data is valuable in the same way that Point of Sale data is – when it is representative, it is an excellent source of the size of the industry.

 

How Can I Gain Market Share?

Gaining market share is the ultimate goal for most companies. Since it is directly related to company revenues (the more you sell, the more revenue coming in), companies measure their program successes on market share gains. There are two main ways companies can gain share:

  • Take sales from competition – Perhaps one of the most challenging ways to gain market share in a developed market is to steal share from competition.
  • Grow the existing market – While technically growing the existing market won’t grow your share, growing the market and capturing a greater percentage of it than you currently have in existing markets will gain share (e.g. if current share of market is 10%, and share of new market is 15%, then you’re seeing share growth)

Staying focused on goals is key to growing your market share. Many companies read share on a quarterly or semi-annual basis to ensure they are not overlooking some key competitive threat or overestimating the impact of a key initiative. Regardless of how you measure your market share, make sure it’s consistent, measurable, and ongoing. Need more information? We’re the market share experts, and we’re here to help.