Market Share Analysis

Market Share Analysis:-

Company sales don’t reveal how well the company is performing relative to competitors. For this, management needs to track its market share in one of three ways. Overall market share expresses the company’s sales as a percentage of total market sales. Served market share is sales as a percentage of the total sales to the market. The served market is all the buyers able and willing to buy the product, and served market share is always larger than overall market share. A company could capture 100 percent of its served market and yet have a relatively small share of the total market. Relative market share is market share in relationship to the largest competitor. A relative market share of exactly 100 percent means the company is tied for the lead; over 100 percent indicates a market leader. A rise in relative market share means a company is gaining on its leading competitor. Conclusions from market share analysis, however, are subject to qualifications:

• The assumption that outside forces affect all companies in the same way is often not true. The U.S. Surgeon General’s report on the harmful consequences of smoking depressed total cigarette sales, but not equally for all companies.

• The assumption that a company’s performance should be judged against the average performance of all companies is not always valid. A company’s performance is best judged against that of its closest competitors.

• If a new firm enters the industry, every existing firm’s market share might fall. A decline in market share might not mean the company is performing any worse than other companies. Share loss depends on the degree to which the new firm hits the company’s specific markets.

• Sometimes a market share decline is deliberately engineered to improve profits. For example, management might drop unprofitable customers or products.


• Market share can fluctuate for many minor reasons. For example, it can be affected by whether a large sale occurs on the last day of the month or at the beginning of the next month. Not all shifts in market share have marketing significance.80 A useful way to analyze market share movements is in terms of four components: Overall Customer Customer Customer Price market penetration loyalty selectivity selectivity share where: Customer penetration Percentage of all customers who buy from the company Customer loyalty Purchases from the company by its customers as a percentage of their total purchases from all suppliers of the same products Customer selectivity Size of the average customer purchase from the company as a percentage of the size of the average customer purchase from an average company Price selectivity Average price charged by the company as a percentage of the average price charged by all companies Now suppose the company’s dollar market share falls during the period. The overall market share equation provides four possible explanations: The company lost some customers (lower customer penetration); existing customers are buying less from the company (lower customer loyalty); the company’s remaining customers are smaller in size (lower customer selectivity); or the company’s price has slipped relative to competition (lower price selectivity).

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