Do you ever ask yourself how some companies get all the attention? Like Apple and Nike, or Instagram and TikTok. They’ve managed to grab a huge percentage of their market share, and now they can drive trends and shape audience preferences. It’s the stuff your dreams are made of, right?
But what is market share, how do you analyze it effectively and what does this metric tell you? In this article, we’ll look at how you can use market research to evaluate your market share. We’ll also examine how to incorporate these insights into your digital research strategy and ultimately become a market leader.
What is market share by definition?
Market share is defined as the portion of a sector controlled by a particular company or product. It is calculated by comparing the percentage of total sales in the relevant market to a specific company’s revenue. To give you an example, if the total market sales for chewing gum was 100,000 and your company generated 10,000 your market share would be 10%.
But is that considered good or bad in terms of market share? You can’t know by looking at the isolated data. What you really need to figure out is what your company’s market share is compared to others in the industry, especially your major competitors. Before you can understand what market share is and how to learn from it, you need to clearly define the relevant parameters and benchmark accordingly.
Let’s dig into the factors that help you understand your position in the competitive landscape.
Analyzing your market share
The company with the largest market share is usually considered the industry leader. But market share is no key indicator of the financial health, profitability, or growth of a company. It is a measure of your competitiveness and gives you a general idea of how you match up in your target arena.
What does market share mean for your position in the competitive environment? It shows how the pie is sliced and how big a piece you have relative to everyone else. When you segment your target market, you receive a more granulated view. Picture each segment as a whole pie and compare how the distribution of portions varies.
Digital companies often use traffic share to gauge their control of the online “pie”. This is particularly valuable if you are running a non-eCommerce site and can’t measure your percentage based on revenue. Measure your traffic share and segment it the same way you would the market.
Defining your target market and its segments
Who is your target market? This is the first question you need to ask yourself before you can calculate your market share. Typically you’d define your specific market and then compare yourself to companies that target the same one. This can be a colorful landscape with many variables.
Market share is usually calculated per country, even though you may be targeting a global or local audience. Drilling down into your share in various locations helps you discover your strongholds and compare regions.
The various segments of a broader market play a critical role. Splitting the market according to product categories and business types lets you evaluate them separately, compare and identify your strength in specific niches.
Let’s say, for example, you want to understand Tesla’s market impact. Is it relevant to measure its share of the entire automobile market? Should you limit your review to private vehicles only? Or exclusively to electric vehicles? You would determine each segment’s size in the entire industry, then measure Tesla’s share and compare.
Understanding your market share
Market share is also relative to your business. A global market share of 1% is nothing to brag about for a company that sells to the worldwide market. But if you only target Texas, it’s an impressive number, and you might even be leading the local market.
As a local vendor, you should consider benchmarking against comparable businesses in other regions. Choose similar size companies with equivalent audience demographics. This lets you evaluate if your market share is average for your type of company or exceptionally high or low.
Here’s another thought to keep in mind that can have a massive impact in the digital space. To gauge market share correctly, look at the specific audience segment you target. Your company may focus primarily on women, or millennials, or high-income customers, which means your goal is leadership in the particular market segment. You’ll conquer the rest later with a new strategy.
Bottom line, when you try to gain insights from market share, make sure to view it in the proper context.
Calculating market share [a formula]
After you’ve defined your market and what you intend to learn from measuring your share, you divide your business revenue (traffic) by the total industry revenue (traffic). The result is your market share.
You may want to compare your business to a specific competitor or industry leader. In this case, you can calculate the relative market share. Divide your market share by that of the relevant rival.
Read more on our full guide – Expand Your Reach: 4 Market Share Formulas to Get You There
Why do you need to grow your market share?
Market share is usually assessed over a fiscal year or quarter. Monitoring market share helps evaluate your company’s growth by examining how you progress relative to the overall market growth. A thriving company will see its market share increase faster than that of the competition.
In stable markets, any tiny shift in market share distribution can disrupt the well-balanced market forces. In growth markets, changes are expected and, therefore, less significant. With new products or new technology, a vendor could take a bite off a competitor’s share or attract a new target audience that wasn’t previously part of the equation.
However dynamic your market, growing your market share is important to growing your company. Capturing a larger percentage of the market means you are increasing sales and revenue. This lets you increase your capacity and efficiency.
5 ways to capture and increase market share
- Marketing and branding
With more aggressive advertising, you can expand your reach, gain more users, and increase customer loyalty. For long-term effectiveness, a strong branding strategy is essential.
- Price reduction
You can tackle the issue from the other angle by lowering your pricing just enough to beat the competition. This is the idea behind periodic discount campaigns, in which companies manage to steal competitors’ customers before raising prices again.
Nurturing your existing customer base is an underutilized and highly effective method. When you maintain a positive relationship and send an occasional special offer, you keep your customers close.
The best example of this strategy is Apple. The company constantly and regularly offers new product lines and innovative features for its existing products. Customers keep coming back for more.
If you can’t beat them, buy them. One way that helps Facebook to expand is by the acquisition of smaller companies and taking over their share of the market. Instead of winning over new customers, they take over the company.
Drawing conclusions from market share
Let’s look at an example of a non-eCommerce digital competitive set and the insights we gain from looking at market share.
Take the news site cnn.com. To define the target market, we look at the overall traffic to publishers and media sites. Specifically in the U.S., CNN’s traffic share is roughly 12%, putting them in second place right after Yahoo, also the global leader.
On the other hand, the news channel ranks number 85 globally. Does this mean CNN isn’t a significant news channel? Not necessarily. We can learn two things: Americans are the largest segment of news consumers, and CNN successfully targets American readers. To learn more, we can also analyze segments of traffic, such as specific marketing channels or devices.
The next step
With Similarweb you can discover your market share, evaluate your competitiveness, and prepare for growth.
Try it now for free and find out where you stand in your market.
This blog post was written by Ruth M. Trucks.
The post is subject to Similarweb legal notices and disclaimers.
How can I measure market share growth?
Calculate market growth by subtracting the market size for year one from the market size for year two. Divide the result by the market size for year one and multiply by 100 to convert to a percentage.
What is the market share formula?
Divide your business revenue (traffic) by the total industry revenue (traffic). The result is your market share.
How can you increase your market share?
Increase market share by using marketing and branding, price reduction, retention, innovation, and acquisition.
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