Share Market

The percentage that a company earns by selling its products over a period of time is called ‘market Share’. Supposing if India allots one million worth business to the different companies/industries here, and one of the companies gets an allotment of 500 crores. This means that particular company has a market share of 500 crores.

A company calculates its market share by taking its sale over a period of time and dividing it by the total sale of the industry for the same period. If the company is a pharmaceutical it shall take into account the total sale of products related to this industry and calculates its sale percentage. A company is said to grow in size and revenue if its market share increases.

Increase of market share allows a company to achieve greater scales in its operation and improve its profitability. Hence a company always looks forward to expand its share in the market.

Investors look at the increase and decrease of market share of a company because that is the barometer that measures the relative competitiveness of the company’s product and services. Therefore companies are always looking forward to increasing their market share and there by their size by appealing to larger demographics, lower prices or through advertisement.

Market share is the key indicator of competitiveness of a company as it grows with it. Not only how well a company is doing against its competitors should be the criteria, but the primary and selective demand of products in the market should be evaluated to judge market growth and decline as well as trends in customer selections among competitors. Generally sales growth from primary demands (total market growth) proves to be more beneficial in increasing market shares than capturing share from competitors.

Market shares may be in ‘dollar market share’ or ‘unit market share’. In India ‘unit market share’ is the trend. It is the unit sold by a company as a percentage of the total market sales, measured in the same unit or currency.

The main advantage of using market share as measure of business performance is that it is less dependent on the macro environmental variables such as state economy and tax policies of a country. However companies selling products outside their countries have the risk of being subject to market share liability a legal doctrine unique especially in the US for plaintiffs.