Look no further than TESLA for a fantastic example of why you need to know how to measure market share.
TESLA held an amazing 18% of the global electric vehicle (EV) market share in 2020. When you consider how many car dealerships have added electric vehicles to their fleets, this is a major accomplishment.
Without the support of a group of great decision-makers, TESLA would not have become the household name that it is today. They chose to do things differently and take on long-standing competitors in the auto industry after calculating TESLA's market share inside the worldwide EV market.
They devised a novel business strategy that allowed them to maintain complete control over TESLA car sales and service. They were able to design a product that appealed to customers in exciting new ways as a result of this.
They might have missed an opportunity to do things differently and fully own the industry if they hadn't done a thorough market share research.
You'll get strategic advantages over your competitors by knowing how to assess market share in various methods. You may take a more granular approach to monitoring business growth (and risk) across multiple battlefields when you look at market share as more than a single statistic.
Key Points
- The percentage of an industry owned or managed by a single brand or company is known as market share (also known as revenue market share or market share by revenue).
- Learn several methods for calculating market share so you can see where you're winning and where you need to create a foothold.
- Calculate your market share to see where you're weakest and build a strategy to control every channel.
How do you calculate market share?
A single brand or entity's market share is the percentage of an industry that it owns or controls. The term "market share" refers to a computation that compares the revenue generated by a single firm to the revenue generated by the entire industry in percentages.
This is the most common way of defining market share. However, this isn't the sole viewpoint. Indeed, if you only look at things through that lens, you may miss out on important chances.
There are a few different methods for calculating market share that can help you boost conversions, cut costs, and get the most out of your advertising budget.
Market share based on the number of units sold
If you own a company that sells products in bulk, you'll need to know how to determine market share by comparing the total number of units you sold in a certain period of time to the total number of units sold in the entire market. This is the same computation as market share by revenue, except you're using products instead of dollars! Later, I'll explain how to calculate market share of this type and why it's important to have.
Organic search traffic accounts for a large portion of the market share.
If your website generates leads or sales, you should know how to calculate market share using organic search traffic. This is the percentage of clicks you receive compared to the total number of clicks available for a given set of keywords. It's a useful number to know when determining how much money you should spend on paid advertising as well as SEO and content initiatives for your company.
This is the most commonly disregarded market share calculation, to the disadvantage of enterprises in almost every industry. Before making a purchase, more than half of customers conduct extensive web research. As a result, it's critical that you appear along the conversion funnel as consumers limit down their choices.
Why is it important to understand how to calculate market share?
Whatever industry you're in, you'll need to know how to find market share data so you can compare your company to competitors. Almost every market that sells goods or services to consumers is flooded with businesses vying for a small pool of customer dollars.
Calculating your market share gives your company model more transparency. It gives you the insight to approach your triumphs and failures with confidence, allowing you to build on what's working and reinvent what isn't.
Compare your company's performance to those of competitors.
You can use a variety of rulers to compare your performance to that of your competition.
If you're a publicly traded corporation in the United States, check out the EDGAR tool from the Securities and Exchange Commission. Anyone can search the Securities and Exchange Commission's database via EDGAR. This will provide you with in-depth knowledge on your competitors.
Another metric to keep an eye on is how well your competitors perform in Google.
In your industry, who has the highest market share of Google's organic search results? Do your competitors have good rankings for high-value keywords? In terms of product vs. informative queries, how do you fare? Are you visible at all stages of the funnel, including TOFU, MOFU, and BOFU?
Know your market's current penetration/saturation.
Market penetration is a measure of a company's success in its industry. Popular brands will oversaturate the market, making it difficult for smaller businesses to break in and compete for client attention and, eventually, income.
A basic market share formula can be used to calculate market penetration. You'll need to compare your annual sales volume to your industry's total target sales for that year. This formula is used by brands to establish pricing, marketing expenditures, and how they will market their items to customers.
You can more effectively examine new growth marketing opportunities if you know your present market penetration. As a result, you'll be able to box out your competitors and establish yourself as the industry leader.
Explore new market possibilities
On the Product-Market Growth Matrix, or the Ansoff Matrix, "market penetration" is frequently depicted as a quadrant. The Ansoff Matrix is a grid tool for strategic planning of brands. It's a valuable tool to have when determining which new market prospects will work and which ones may be passed up to better suit your brand's overall strategic strategy.
The Ansoff Matrix is a step-by-step strategic growth method for organisations to follow. It doesn't make taking on new ventures any less risky. However, by thoroughly examining every potential business pivot or opportunity, it helps to limit risk. It might also serve as a springboard for new business prospects.
- Market penetration entails increasing sales of your current products in the market you now control.
- Product development is the process of coming up with fresh ideas and creating new products or services.
- Market development – Plans and strategies for entering new markets with your current products or services.
- Diversification — Breaking into new markets with new products or services
So, while knowing market penetration is an important component of creating a successful firm, it's only one piece of the picture. Brands that succeed look at the puzzle as a whole and look for chances that their competitors will overlook or overlook. The first stage in the process is to figure out where you stand in terms of market share.
What is the formula for calculating market share?
Learning how to calculate market share is actually fairly straightforward. The sorts of market share formulas we discussed earlier are listed below.
To determine your company's market share, you may need sales analytics on your total revenue for the previous year (or any recent fiscal year or fiscal quarter), as well as metrics on sales for the entire market. However, once you get the necessary information, it's quite straightforward. Simply plug those numbers into Excel, and you'll have a wealth of information to work with.
How to Determine Market Share Based on Revenue
- Choose your fiscal year.
- Calculate the total sales of your organisation.
- Calculate your industry's total market sales.
- Divide your company's total sales by the whole market sales of your industry
How do you calculate market share based on the number of units sold?
- Select a fiscal year.
- Calculate the total unit sales of your company.
- Determine the total number of units sold in your industry.
- Total units sold by your firm divided by total units sold by your industry
How can organic search traffic help you gain market share?
- Select a fiscal year.
- Based on total search volume and click-through rate, calculate the total available clicks within a specific set of terms.
- Based on the CTR of your ranking position and the search volume for each phrase, calculate your proportion of those clicks.
- Divide
What does a market share report for organic search look like? Stridec recently provided two examples on the beauty and cosmetics business, as well as the financial services area. These reports are available for download below.
How can you expand your market share?
You may utilise this information to raise your company's market share, and ultimately, total income, now that you know how to look at your brand's part of the market via a variety of lenses and computations.
There are a few things you can do to boost the overall competitiveness of your brand. You can begin to take the lion's share of your market by extending what you offer, how you offer it, and where you offer it.
Acquire a larger share of the organic search market with SEO
Organic search is the most potent client acquisition channel you can use in terms of marketing ROI. It generates 5x more results than PPC, according to Google.
Why is SEO so effective in increasing market share and driving organic growth?
Because people's buying habits have altered. Customers have been warming up to online or hybrid purchasing experiences for years. The epidemic, on the other hand, has expedited the tendency, drawing more people into the internet buying ecosystem.
Customers don't just buy online; they do their homework, compare products, ask questions, and make judgments based on what they learn.
By providing informative content, the online journal Byrdie was able to take a considerable chunk of the organic search market share away from major cosmetic businesses. Stridec was near the top of the scoreboard when they calculated their market share across nine beauty industry segments.
As a marketing executive, you must understand this shift in consumer behaviour and invest more in comprehensive, interesting, authoritative, and search-optimized content. This will increase your organic market share by capturing more customers across the funnel.
Develop new services or goods
Develop new items or services if you truly want to propel your company into the public spotlight.
Consider Coca-Cola, a long-standing brand that decided to reinvent itself in the soft drinks sector. Coca-Cola realised they could sell its trademark product in different flavours as other competitors entered the market, so they did!
Developing innovative items always entails some level of risk. This is especially true when it comes to food and drink. Consumers are creatures of habit in many ways. To get customers on board, Coca-Cola had to do extensive market research and launch brand awareness efforts. Of course, the rest is history.
Every day, almost 57 billion drinks are served, with nearly 2 billion being Coca-Cola-owned or licenced beverages. That's what I call market saturation!
Acquisitions and Mergers
Coca-Cola recognised that extending their product line to include other types of drinks, such as Vitaminwater, was another strategy to boost market share. Vitaminwater was initially a stand-alone company with yearly revenues of 350 million dollars. The company's annual income climbed to one billion dollars when Coca-Cola bought it.
Acquiring existing businesses alleviates some of the drudgery of starting a new company. Many of the initial operational costs are already covered, and you gain a built-in customer base. Nonetheless, acquiring other businesses, especially when they are already profitable, can be a significant investment. However, in the case of Coca-Cola and many other companies, this is not the case (like Nestle and major media corporations)
Consider innovative business models.
Coca-Cola not only understands how to grow market share through acquisitions, but they've also done so through modernising their business.
Dr. John Stith Pemberton, a pharmacist, invented Coca-Cola in Atlanta in 1886. It was designed to be a tonic in the first place. Wine and cocaine were used to "treat" a variety of problems back then.
Prohibition was repealed in Pemberton's state not long after he invented the beverage. As a result, Coca-Cola was almost put out of business before it even got started. Pemberton, on the other hand, was a true businessman. He took out the wine and replaced it with syrup, resulting in the first versions of Coca-Cola that we are all familiar with.
Coca-story Cola's has always been about imagining new ways to do business, and it's been a phenomenally successful story. That is why they are the market leader in the beverage industry.
So, perhaps your company requires its own Coca-Cola tale. On your website, you could create an amazing digital customer experience. Alternatively, you may invest in a long-awaited digital transformation programme.
Customer retention should be improved.
When you increase customer retention, you cut your operating costs. Getting a new customer can cost five times as much as keeping your current ones. This kind of financial drain accumulates over time. When you lower acquisition expenses, you enhance profit margins and free up money in your budget to invest in other areas of your organisation, such as the ones listed above.
Pitching to an existing customer is also easier and more effective. When compared to selling to a new customer, who has a success rate of roughly 25%, they are up to 70% more likely to buy-in to a new product or service you offer (Outbound Engine). Client retention enhances profitability by a substantial margin, therefore prioritising customer relationships is crucial.
Increase the number of customers you have.
You can increase your business potential by expanding your consumer base to include new demographics.
In some circumstances, all that is required is a change in marketing messaging. Alternatively, you may need to launch a new product or service with distinct features. In some circumstances, you may need to diversify your customer acquisition efforts across multiple channels, bridging the gap between online and offline brand engagements.
Build better tactics by using market share calculations.
It's critical to understand how to calculate market share in order to get information like your company's sales revenue versus the industry's overall sales or whether a specific competitor has a large market share in Google search. In order to develop more successful plans, you'll need access to these data points.
Because your products are more expensive, you can have the highest total revenue. On the other hand, you may sell the most things, but at a lesser price, resulting in reduced revenue. Alternatively, you could have the biggest income and product sales, but you spend too much money on sponsored ads and affiliate marketing, reducing your profit margins. You may even have a large market share in one niche but little overall penetration in the sector.
In a vacuum, any one of these measures could convince you to believe you're the market leader. However, a closer analysis reveals that you are behind schedule.
Finally, while determining market share, it's critical to take into account all of the elements in order to keep your company profitable and competitive.