Market Share

Market share is the percentage of the total market that a company controls for a particular product or product category. Put simply, if the widget market is $100 million annually and Acme Inc. sells $25 million in widgets, its market share is 25%. Market share is also sometimes given in unit sales: If Acme sells 10,000 widgets in a 50,000 widget market, its unit market share is 20%. Market share is often broken down by geographic area (state, country, etc.), gender, ethnicity, and other demographics. Companies strive to increase market share to achieve economies of scale in production, distribution, advertising, and other functional areas, thereby widening profit margins and increasing earnings. Moreover, the firm with a dominant market share can often dictate market practices that keep competitors at bay. To increase market share, companies lower prices, improve products, increase advertising spending, and expand distribution channels. The most dramatic way of increasing market share, however, is to merge with a competitor.