Market Share: Definition and Its Function to Business

Market share is one of the important metrics in a business. By looking at market share, a company can see its influence on the market they are in. This is certainly not easy considering that currently, the market is increasingly competitive with many competitors for a product.

Therefore, this article was written to help companies understand the definition of market share. In addition, a company is expected to know why they need to understand and understand it and know what are the benefits of knowing the market share of the market they are currently in.

Business Competition

Currently, the market for a product is increasingly competitive. Especially with advances in technology, it is easier for someone to sell. Someone can start with little capital, until later they can establish a fairly stable business. Starting a business today is quite easy compared to before.

But maintaining it is not that easy. Especially now that one can shop easily with various platforms. A customer has the privilege to choose the product according to his wishes. This makes the company must be careful because a slight mistake can make customers choose products from other companies.

It also makes today many business owners prefer niche markets because the market is more focused on specific customers. There is also less competition in niche markets than in more popular markets. Therefore, currently, the products available in the market are also increasingly varied and specific.

Read More: Soft Sell Example You Can Implement on Your Business

Market Shares

The more developed a business, the more likely they are to dominate the market share of the product. The size of the market share of a business in a particular market shows how successful the business is. However, what is the actual definition of market share?

Market share is the percentage of sales of a company from total sales in a certain period in a certain industry. A business usually has a focus on a particular industry. Market share shows how much the company's sales are from the total sales of the industry.

The market share itself indirectly shows the condition of a company and its competitors at a certain time. From this, you can compare how close you are to your competitors. After that, you can evaluate why the closest competitors were able to achieve that number.

This can later affect the strategy and business plan that will be used by a company, especially if the competitor's position is above it. It is important to know the market share so that a company can see the condition of the company compared to other companies.

For example, when a business is engaged in snacks. You can see the snacks that you sell in the industry compared to your competitors. From the market share, you can see how much of the market share you have got from the snack food industry.

The profit from selling food for that month to your company is around 40 million Rupiah. While the total sales in the industry are around 100 million Rupiah. You can use these two data to calculate the percentage of market share with the following formula

Market Share = (Total Company Sales/Total Industry Sales) x 100%

Market Share = (40,000,000/100,000,000) x 100%

Market Share = 40%

 

Market Share Benefits

After getting an understanding of market share, of course, you already know how market share works. However, what exactly is the function of market share for a business? The following are some of the basic functions of market share for businesses

1. Profitability Benchmark
   From calculating the market share that you have, you can find out the profitability that you have in that industry. Especially if the market share shows a positive period for some time, this can be a good signal for your business. You can make this the basis of the decisions you make for business.
   One of the decisions you can make is to expand your business. When your profitability is stable enough, it never hurts to start expanding. Especially if your company's market share in the industry is quite large, this shows that customers in that industry are quite dependent on your products.
    
2. Business Progress Indicator
   Apart from showing the profitability owned by a business, the percentage of market share owned also shows how the progress is owned by a business. This can be seen from several periods of market share. If it continues to show a sizable portion, it means that the business is growing and running well.
   Vice versa. By looking at the market share trends that you have, you can make business decisions. Like if your market share continues to decline. You can start taking steps to improve it. One thing you can do is evaluate sales and marketing policies.
    
3. Shows the Company's Position in the Market
   One function of market share that feels real is to show the company's position in the market. As previously explained, from the existing market share data, you can see how the proportion of these businesses is in an industry. Besides being able to see how close the competition is with competitors, you can also see your company's position in the industry.
   By looking at market share, you can see if your company is one of the leaders in the industry. If it turns out that the percentage of your company's market share is quite large, you should be proud. This shows that your business plan and marketing strategy are going well.

 

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The explanation above shows the meaning of market share and what functions market share can provide for your business. Whatever percentage of market share you have, you can't stay too complacent. You must continue to make improvements in various sectors so that your business can improve and grow.

One way to help improve this is to read the data you have and process it into information. With Kokatto's data analytics service, you can do this. You can also improve customer service by using customer care and chatbots. Apart from that, there are other features that you can get by visiting Kokatto!