Definition of market share – The business world will always intersect with market competition, so for business people to dominate the market is one of the main goals. Usually, business people will calculate how many sales have been made in a certain period to find out their company’s dominance in the market.
In the business world, this achievement is often referred to as market share or market share. Market share itself is very important to know because it will be a benchmark for the company’s strength when compared to its competitors.
So, in this article we will discuss the meaning of market share, what are its functions and types, how to calculate it, and tips for increasing market share. If you plan to start a business in the near future, pay close attention.
Definition of Market Share
Kotler and Armstrong (2013) define market share as the total sales of a company compared to the total sales in the market. This sales figure can be calculated rationally and used for several purposes, such as:
- Determine the company’s position in the market
- Formulate and select a strategy to be used to maintain or expand market share
To make it easier, try to imagine that right now you are selling macaroni in a housing complex because this food is currently viral and much sought after. But you also have a lot of rivals.
Let’s say that within one month there are 1000 people who buy macaroni, 300 of them buy from your place, the remaining 700 buy from competitors. This means you have a 30% market share.
Usually, market share can change at any time depending on changes in consumer tastes or consumers moving their interests to other products. In addition, the more business actors in these commodities, the fiercer the market share competition will be.
Marketshare function
Market share has various functions for a company, including:
1. Improve reputation
In the eyes of consumers, market share is often used as an indicator of evaluating a company’s reputation. If the product you have manages to dominate the market and can maintain it for several periods, consumers will automatically have more confidence in the business you are running.
In fact, there may be consumers who promote your products and business to other people without you asking at all. That way your business reputation will increase.
2. Signs of potential new consumers
Market share can also help you to know that there are potential new consumers in the industrial sector you choose. When the market share is still low, it means you have a great opportunity to reach these new consumers.
3. Measuring business competitiveness
The percentage of market share of the business you run can be an indicator to measure your company’s competitiveness. For example, if your market share is below that of your competitors, it means you have to find out what your competitors are doing to be in their position. The rest is all you have to do is develop an ATM strategy (Observe, Imitate, Modify) to increase market share.
4. Measuring the amount of sales
You can also use market share to measure sales volume. If the market share is high, it means that your product sales are good. Vice versa, if the market share is low, it means that your product sales are not good and you need to do an evaluation.
The purpose of this evaluation is so that you can find out what are the factors that affect the decrease in the number of sales and then find a solution. For example, from the evaluation results you know that sales on social media such as Whatsapp and Facebook are not optimal, meaning you must immediately prepare a new digital sales strategy.
Types of Market Share
1. Value market share
In value market share, the percentage calculation is based on the total sales segment. This means that the company calculates the percentage based on the achieved price.
You need to know, the value market share figures are not always directly proportional to the volume market share. So, even though the value market share of your business is high, the volume market share is not necessarily high.
2. Volume market share
Volume market share refers to calculating the total number of products sold in the market. Interestingly, often the volume market share is lower than the value market share.
3. Revenue market share
Revenue market share is a type of market share whose calculation is based on revenue compared to competitors. In other words, revenue market share is more focused on the total money generated from product sales. This revenue market share figure can be a percentage of your product’s individual market share.
4. Customer market share
Customer market share is the ratio of the number of customers compared to the total number of customers in your business sector. This type is more widely used in the work sector where the number of consumers and subscribers is really concerned.
Advantages And Disadvantages Of Market Share
When you run a business or business and get a sizable market share, you will get the opportunity to attract potential investors to provide additional funds or capital.
The reason is, businesses or businesses that have a fairly large market share and manage to maintain it tend to experience an increase in turnover. From this increase in turnover, the business expansion process becomes easier to do.
But of course, a businessman cannot be satisfied quickly and must always try to increase his market share. There are lots of ways you can do this to make it happen, from lowering prices, taking advantage of digital advertising, product innovation, and many more. More details will be discussed in the next section.
Apart from these advantages, market share also has its own drawbacks. This is because market share is basically a tool that can provide an initial picture that can be used by business people or companies.
For example, if a company has a larger market share than its competitors but produces less profit, then the company’s market share is less effective as a measure of the company’s success.
In addition, when there is one or several groups of companies that control the majority of market share, it will make it difficult for other companies to compete. Monopolies that are already very strong will certainly be difficult to tear down, especially for small companies. This situation seems to emphasize that small companies can only get a small profit.
How to Calculate Market Share
Calculating market share is important to do to find out a company’s competitiveness or how much “power” a company’s product has in the market. To calculate it, you can use the formula:
Market share = (company revenue/total industry revenue) x 100%
For example like this:
During 2021 yesterday, the macaroni business that you ran managed to collect revenue of IDR 30 million while the total revenue for the macaroni industry in 2021 was IDR 130 million, so the market share for your macaroni business will be:
| Market share: (Rp 30,000,000/Rp 130,000,000) x 100% = 23.07% |
So, the macaroni business that you are running has managed to control 23.07% market share in the macaroni sales industry.
You need to know, before calculating market share you must determine the target consumers of the business you are running. This target consumer must be specific. For example, you set your target consumers to be school students and university students. So, school and college students need to be even more specific.
For example students and college students whose allowance is more than 30 thousand per day or 900 thousand per month. From here you can know that the target consumers of your business are students who come from lower middle class families.
Factors That Can Hamper Companies To Reach Market Share
In practice, there are external and internal factors that can hinder or become obstacles for companies to reach their market share. These factors must be evaluated in depth so that the company can determine how to overcome them. These factors are:
1. The target market does not match the product
Sometimes there are business people who are mistaken in determining the target market so that it does not match the product offered. For example, you sell premium macaroni at a price of IDR 50,000 per kilo, but you offer it to students or students whose allowance is IDR 30,000 per day. This strategy is clearly not going to work because the price of the product being offered is too expensive.
There are also some business people who directly target the middle to upper market when they are just starting operations or are still in the pioneering phase and the brand is not very well known. Indeed there is nothing wrong with this strategy, it’s just that the chance of loss is quite large.
2. More and more competitors
The next factor is the number of competitors in the same industry is increasing. With so many product providers, consumers can choose goods that really suit their needs. If you play in an industry like this, you must be smart in finding the Unique Selling Point (USP) of your product so that it has more value in the eyes of consumers.
3. The company’s competitiveness is declining
Decreasing company competitiveness can also be a factor that makes it difficult for a business to reach the targeted market share. For example, the product that you have has no appeal or advantages that differentiate it from products from other competitors.
4. Misdirected marketing
Currently, all businesses can use technology to create advertisements on all channels, from social media, websites, to digital media. This method is effective for targeting customers who have specific interests or are relevant to the business.
However, this method also requires the right marketing strategy and cannot be done haphazardly. At the very least, you have to make the right targeting so that the ads actually reach the right people.
Ways To Increase Market Share
1. Do the Observe, Imitate, Modify (ATM) method
In the business world, there is a method called Observe, Imitate, Modify or often abbreviated as ATM. With this method, business people can seek inspiration from competitors and then modify it to suit the conditions they face.
Often times, novice business people consider this method to be 100% plagiarism. In fact, ATM and plagiarism are different. Because ATM only takes inspiration, not using the same idea or strategy 100%.
Therefore, to implement this ATM method there are several things that must be considered from competitors, including:
- What are the advantages and disadvantages of competitors’ products?
- How do they serve their customers?
- What are the marketing strategies used by competitors?
After getting all the answers, you can think of a strategy that suits your business conditions.
2. Set your product’s Unique Selling Point
To win the competition, the products you offer must be superior to competitors. How to? Yes, by setting the Unique Selling Point (USP) of your product.
USP itself is something that differentiates your product from competitors’ products so that consumers are interested in buying your product rather than competitors’. Some ways that can be done to determine the USP are:
- First understand what consumers want. The method is to conduct a survey directly to consumers using a digital form. Here you can ask what consumers like and don’t like about your product.
- After that, you can ask for feedback about service, prices, and other things related to your business
- Then evaluate the product marketing strategy so that it can match the wishes of consumers
- You can also find out the shortcomings of competitors’ products and make it the USP of your product. Here there are lots of aspects that you can see, starting from product quality, price, how to serve consumers, language style, even to social media feeds.
3. Create a business-specific website
In this digital era, businesses can create special websites for various purposes. For example increasing customer trust or selling products directly. In addition, the website can also be used to develop a business by:
- Implement a digital marketing strategy
- Implementing SEO so that the website is on the first page of search engines
- Search Engine Marketing (SEM)
- And others
4. Take advantage of effective marketing strategies
Utilizing an effective strategy can make it easier for businesses to reach consumers, therefore a businessman must be good at developing marketing strategies. For example using artists to become brand ambassadors, or using celebrity services to promote products on Instagram, and others.
5. Maintain relationships with consumers
Reaching new consumers is important, but ensuring that consumers become customers must also be considered. To make it happen you have to maintain relationships with consumers.
Remember, loyal customers can be an opportunity to increase market share because they will promote your products to friends, family, neighbors, co-workers, even on social media.
After that, make sure you keep loyal customers from running away to competitors. You can do this by:
- Always presenting innovative products that can meet consumer needs
- Continue to maintain product quality
- Using Cross Selling or Up Selling
- Provide the best service to every customer
- Organizing customer loyalty programs
6. Lower product prices
In any part of the world, consumers always prefer lower prices and you can make this habit a strategy to increase market share. With a note, you have to do the calculations carefully and think about all the possibilities well.
7. Lyrics of new demographic groups
The more your business audience, the greater the sales opportunities. Therefore, if you feel you can and need it, you should try new demographic group lyrics.
This demographic can be age, economic status, income, interests, or something else. In other words, you create new target markets and marketing strategies based on different demographics.
8. Routinely evaluate
The last way to increase market share is to routinely evaluate. You can make evaluations to assess business development every week, month, semester, to yearly. If needed, you can adapt the strategy to the conditions at hand.
Although the last method is important, not a few business people forget it. Usually after the business is running, the businessman only focuses on income, marketing, and expenses. Though evaluation is also important in business development.
Thus the discussion about the meaning of market share and how to increase it. Hopefully all the discussion above is useful as well as add to your insight.
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Author: Gilang Oktaviana Putra