calculate market share

3.1.2 Market Changes – Understanding & Calculating Market Share

Why market share matters in the study of market changes

Market share is a key indicator of a company’s competitive position. A rise or fall in share signals a shift in the market – for example a new entrant, a change in consumer preferences or a rival’s pricing move. Because it reflects how a business is performing **relative** to the whole market, market‑share data often trigger strategic responses such as product development, price adjustments or promotional campaigns.

What is market share?

Market share is the proportion of total sales (value **or** volume) in a defined market that is earned by a particular company. It is always expressed as a percentage.

Formula

Market Share (%) = (Company Sales ÷ Total Market Sales) × 100

Both numerator and denominator must be measured in the same units – either monetary value (e.g., £, $) **or** physical units (e.g., units, litres).

Step‑by‑step calculation

1. Define the market and the period you are analysing (e.g., the UK smartphone market in 2024).
2. Obtain the company’s sales for that period (value **or** volume).
3. Obtain the total sales for the whole market (same unit as step 2).
4. Insert the figures into the formula and calculate the percentage.

Worked example – value‑based

Company A sold £250,000 worth of product X in 2024. The total market sales of product X were £1,250,000.

Company A’s market share = 20 %.

Worked example – volume‑based

Company B sold 45,000 units of a beverage in 2023. The total market volume was 300,000 units.

Company B’s market share = 15 %.

Interpreting changes in market share

• Rise in share – growth relative to competitors; often the result of a successful product, price cut, or effective promotion.
• Fall in share – loss of competitive advantage; may be caused by new entrants, shifting consumer tastes, or a rival’s lower price.
• Stable share – the company is keeping pace with overall market growth.

Typical business responses to a change in market share

• Review and adjust the product mix (add features, improve quality, launch a new line).
• Modify the pricing strategy (penetration pricing to gain share, price‑skimming if a premium margin is preferred).
• Strengthen promotion (digital advertising, loyalty programmes, price‑linked promotions such as “10 % off for the first month”).
• Enter new market segments (e.g., a niche market where the firm can achieve a higher share).
• Improve distribution or customer service to enhance perceived value.

Link to market research (Section 3.2)

Accurate market‑share figures depend on reliable data, which is gathered through primary and secondary research.

• Primary research – surveys, interviews, focus groups, observation – can provide up‑to‑date sales or purchase‑intention data directly from consumers.
• Secondary research – industry reports (e.g., Euromonitor, Mintel), government statistics (e.g., ONS), competitor annual accounts – supplies published market totals. Example: the total UK smartphone market value for 2024 is taken from the “British Telecom Industry Report 2024”.
• Sampling – a representative sample ensures the data reflects the whole market; bias or a small sample can distort share calculations.
• Data accuracy – errors in collection, outdated figures, or an incorrectly defined market (e.g., including unrelated products) are common limitations.

Market‑share and the marketing mix (Section 3.3)

Price

• If a competitor lowers price, market share may shift when the product is price‑elastic (demand changes noticeably with price).
• Pricing methods such as penetration pricing aim to gain a larger share quickly, whereas price‑skimming may accept a smaller share for higher margins.

Promotion

• Effective advertising – especially on digital platforms (social media, e‑commerce sites) – raises brand awareness and can increase share.
• Promotions such as discount codes, limited‑time offers or loyalty‑point schemes can generate a **short‑term** rise in share; businesses must monitor whether the increase is sustainable and how it affects profit.
• Integrated campaigns (e.g., influencer marketing combined with a 10 % launch discount) illustrate the direct link between promotion and market‑share movement.

Legal & ethical controls (Section 3.4)

• Companies must not publish misleading market‑share data; exaggerating figures can breach consumer‑protection legislation (e.g., the UK Consumer Protection from Unfair Trading Regulations 2008).
• Anti‑trust legislation (e.g., EU Competition Law) prevents firms from colluding to manipulate market share through price‑fixing or market‑division agreements.
• Case‑study example: In 2021 the European Commission fined Company X €150 million for inflating its market‑share statistics in order to mislead investors and gain a dominant position.
• When entering foreign markets, firms must respect local advertising standards and competition regulations.

Segment‑specific market share

A firm may hold a high share in a niche segment while its overall market share is low – an important distinction for AO2 (application).

• Example: Company D holds 45 % of the premium smartwatch segment but only 8 % of the total smartwatch market.
• Understanding niche vs. mass‑market share helps businesses allocate resources where they have a competitive advantage.

Limitations of market‑share analysis

• Data reliability – inaccurate sales figures or outdated market totals give a false picture.
• Market definition – including or excluding related products can dramatically alter the denominator.
• Seasonal fluctuations – a short‑term rise may be due to a seasonal peak rather than a lasting advantage.
• Only a relative measure – market share does not indicate profitability, cost structure, or overall market growth. When evaluating performance (AO4), students should weigh market‑share data against profit margins and market‑growth rates.

Practice questions (mapped to all assessment objectives)

1. Knowledge/Calculation (AO1 + AO2): In 2023, Company B sold £3.2 million worth of goods in a market where total sales were £16 million. Calculate Company B’s market share.
2. Application (AO2): Company C’s market share fell from 12 % to 9 % over one year. If the total market sales remained at £10 million, how much did Company C’s sales decrease in monetary terms?
3. Analysis (AO3): Explain two reasons why a company’s market share might increase even if its sales volume stays the same.
4. Evaluation (AO4): Evaluate the usefulness of market‑share as a performance indicator for a start‑up entering a mature market.
5. Research methods (AO2 + AO3): Identify two primary‑research methods that could be used to obtain the sales data needed for a market‑share calculation, and discuss one advantage of each.
6. Link to the marketing mix (AO3): Discuss how price elasticity can affect a company’s market share when a rival introduces a lower price.

Suggested diagram(s)

• Line graph: Plot a company’s market‑share percentage over five consecutive years. Highlight spikes or falls and annotate possible causes (e.g., new product launch, price change, promotional campaign).
• Pie chart (optional): Show the distribution of market share among the four main competitors in a defined market, with a separate slice for “Other”. This helps students practise interpreting percentage data and comparing relative positions.

Key points to remember

• Market share is always expressed as a percentage.
• Use the same units (value **or** volume) for both company sales and total market sales.
• Accurate market‑share analysis depends on reliable primary or secondary research data.
• Changes in share should be linked to the marketing mix – especially price and promotion – and to broader market‑change factors.
• Legal and ethical considerations govern how market‑share information is gathered, reported, and used.
• Always consider the limitations of the data and the market definition before drawing conclusions; combine market‑share with profitability and market‑growth data for a fuller evaluation.