Measuring product market share

Market share is measured by firms to determine their competitive position relative to other firms in the same industry and to assess their yearly performance. Sales figures are insufficient to indicate a firm’s relative performance because they typically reflect changes in the market or in the economic conditions. However, these factors are beyond a firm’s control. In contrast, market share provides valuable information on how a firm can improve its performance by capitalizing on market opportunities and anticipating market threats.

Problems in measuring market share

Market share is measured as the proportion of a firm’s sales relative to the total market sales. While the formula to calculate market share is straightforward, measuring market share accurately is complex because:

• Total market sales are quite difficult to determine precisely. Estimates include surveying manufacturers, distributors and consumers. Nevertheless, the survey results may be incorrect due to double counting and omitted parts of the market.


• The increasing complexity of distribution channels and the dynamic economic conditions can make estimating a firm’s market share complicated and time-consuming.

Factors to consider when measuring market share

The precise calculation of market share is reliant on three key factors:

• Market definition: This includes a firm’s product line, target audience, distribution channels and competition.


• Available information: This includes a thorough understanding of the market.


• Appropriate method: A firm’s sales are determined on a unit basis or on a value basis. If the total sales of CDs for 2010 in the United States are 326.2 million units and the firm has sold 56 million units, it has a market share of 17.1 percent (56/326.2). The second method is based on total revenues (value). If the total revenues of the CD industry for 2010 are $6.5 billion and the firm’s revenues are $1 billion, it has a market share of 15.4 percent ($1/$6.5). Apparently, calculating based on a unit basis or on a value basis returns different market shares because competitors sell their products for different prices.

Techniques for measuring market share accurately

Above three factors indicate the importance of determining the appropriate measures of market share. Marketing specialists need to determine which measure provides the best results for the particular industry. Moreover, by implementing particular techniques, they can define the firm’s market share according to strategic objectives.

In particular:

• Understanding the market: It is essential for a firm to understand the market it which it operates. Marketing experts should obtain empirical data related to the firm’s products or services. To obtain statistics on their specific market, they can research industry groups and business organizations such as the Chamber of Commerce. Moreover, subscriptions to trade publications for their specific industry as well as attendance to trade shows can provide a good sense of how the entire market performs and how competitors are doing. This type of research as a part of current business practice allows marketing specialists to realize a market’s potential, see a market opportunity for growth and firmly analyze the firm’s market share.


• Implementing effective marketing strategy: The marketing strategy is equally important to market research. Each firm has strengths that can be its distinctive competencies and weaknesses that need to be leveraged in relation to competitors. By performing a SWOT analysis, the firm can evaluate its Strengths, improve its Weaknesses, capitalize on Opportunities and anticipate potential Threats. In doing so, it can ensure the implementation of an effective marketing strategy that can successfully respond to the competitors’ moves and ensure a higher market share for the firm. Moreover, a successful marketing strategy can ensure an expanded customer base that will ultimately lead to enhanced customer loyalty.


• Estimating consumer data: Consumer data are readily available from Applied Geographic Solutions or CACI, but this method does not apply to all industries. Other sources of demographics are ACNielsen providing scanner-based purchase data and MRI that provides consumer survey data. Nevertheless, to most accurately estimate demographics, marketing experts should measure market share in units and assume a penetration percentage in the industry based on consumer data from above providers.

Conclusively, an ambiguous market-share calculation can lead to entirely incorrect conclusions about a firm’s positioning and potential. An accurate calculation of market share can give a firm a competitive advantage, access to new products and increased brand loyalty.