Unless revenues are measured against the overall markets a company sells into, how much it sells in dollars or units per month, per quarter or per year does not necessarily accurately reflect its economic health or future viability.
A company’s total sales compared to the total sales of all its direct competitors defines market share. The market share formula looks like this: A company’s total revenues is divided by total sales by all direct competitors in a certain market or markets, usually within a certain geographic area, by month, by quarter and/or by year and is converted into a market share percentage (Company revenues/Market sales = Market Share Percentage).
Though most industries measure business market size in dollars by multiplying units sold times the selling price, some industries measure market size by units sold or by the number of transactions reported.
Why Increase Market Share
- To increase revenues and profits
- To ‘jump start’ revenues and profits by product, by service and/or by location
- To reduce costs by virtue of improved economies of scale
- To enhance a company’s reputation by positioning it as ‘a major player’
How to Increase Market Share – Strategies
- Perform a market analysis to determine which products and services offer the best profit/volume potential
- Conduct a SWOT analysis to ensure the ability to meet the demands of an increased market share
- Offer ‘repeat buyer’ incentives to increase sales to current customers
- Offer ‘returned customer’ incentives to bring back former customers
- Target similar customers who currently buy from competitors
- Develop new products and services to sell to new customers in new markets
How to Increase Market Share – Tactics
- Discount prices to meet or beat competitors’ price points
- Increase advertising and promotions to attract new buyers
- Introduce new products and services to appeal to new sub-markets within existing primary markets
- Expand channels of distribution and delivery
- Competitors may ‘kick-back’ against a discount strategy by instituting a costly price war
- Advertising and promotional costs may exceed potential profits
- New products and services may not sell in profitable volumes
- Costs to expand distribution and delivery may exceed profit potential
- Capacity to supply new markets may be outstripped to the point of abject failure
The key to success – and security – in increasing market share is information. The smarter a company is about its own capabilities, about its products and services, about its overall market, about its competitors and their products, services and customers, the better its chances will be of not only increasing market share but of retaining increased market share.