The meaning and calculation of market share

Market share represents the portion of total sales in a specific market that a particular business or product captures. Businesses often seek to expand their market share by drawing customers away from competitors, which can lead to greater influence in the market and the ability to set higher prices.

Formula for calculating market share

$\text{Market share (\%)}=\frac{\text{total product or business sales}}{\text{total sales in the whole market}}\times 100$

Where:

• Total product or business sales = Revenue generated by the specific product or business (£)
• Total sales in the whole market = Overall revenue in the entire market (£)

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Worked example - Calculating market share

A company sells sports equipment worth £300,000 in a market where total sales are £1,500,000. Calculate the company's market share as a percentage.

Step 1: Identify the values

• Total business sales = £300,000
• Total market sales = £1,500,000

Step 2: Apply the market share formula

$\text{Market share (\%)}=\frac{\pounds \mathrm{300,000}}{\pounds \mathrm{1,500,000}}\times 100$

Step 3: Calculate the market share

$\text{Market share (\%)}=0.2\times 100=20\%$

The purpose and elements of market analysis

Market analysis involves a detailed examination of a market using both quantitative data (such as numbers and statistics) and qualitative insights (such as opinions and trends). This process helps businesses understand the market environment, identify opportunities, and make informed decisions. It should be conducted regularly because markets are constantly evolving.

Key elements assessed in market analysis

• Market size - The overall value or volume of the market, often measured in total sales or number of customers.
• Growth rates - Current trends in market expansion and predictions for future growth, helping to spot emerging opportunities.
• Existing businesses - The number and scale of competitors already operating in the market, which indicates the level of competition.
• Influencing factors - External elements such as social trends, political regulations, technological advancements, environmental concerns, and economic conditions that can alter the market.
• Costs and profitability - Estimates of potential expenses involved in entering or operating in the market, alongside forecasts of likely profits.
• Segmentation opportunities - Ways to divide the market into smaller groups based on characteristics like age, income, or preferences, to target specific customers more effectively.
• Consumer behaviour patterns - Habits related to how and why customers purchase and use products, including frequency of buying and brand loyalty.

Characteristics of mass and niche markets

Markets can vary in size and focus, affecting how businesses approach their strategies for selling products.

Mass markets

Mass markets are extensive, targeting a broad audience with products that have widespread appeal. They often involve high-volume production and marketing to reach as many consumers as possible. Businesses in mass markets may benefit from economies of scale, but face intense competition from multiple rivals.

Niche markets

Niche markets are smaller segments, typically subsets of larger markets, catering to specific customer needs or preferences. They allow businesses to focus on specialised products, often commanding higher prices due to less competition. While easier to dominate, niche markets may have limited growth potential compared to mass markets.

Factors influencing market changes and domination

Markets are dynamic and can shift due to various internal and external influences, impacting business strategies and outcomes. Achieving market domination, where a business holds a significant share, can provide advantages like premium pricing power.

Causes of market shifts

• Changing consumer preferences - Shifts in tastes or priorities, such as a move towards sustainable products, can alter demand patterns.
• External factors - Influences like technological innovations, economic downturns, or regulatory changes that reshape the market landscape.

For example, in the drinks sector, growing health awareness has led consumers to prefer low-sugar options over traditional fizzy drinks.

Benefits and examples of market domination

Dominating a market enables businesses to influence prices and trends, often leading to higher profits. In highly concentrated markets, a few key players may control the majority of sales. For instance, in the mobile phone sector, three leading brands might collectively hold 70% of the market, with shares of 35%, 20%, and 15% respectively.