How to Evaluate Market Shares

How to Evaluate Market Shares
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A company’s market share offers a snapshot look at the strength of the company compared with that of its competitors. A dominant company is often seen as a safe investment, but without evaluating its market share history, you cannot get a true picture of its competitiveness. The more information you have about a company's market share, the better you will be able to determine the actual strength of that company.

Determine the market share of the company you’re evaluating. To determine market share by revenue, divide gross revenues of the company for a specified period, which are the total sales not accounting for returns, by the total earnings of the market for that period. Then multiply the result by 100 for the market share presented as a percentage. To determine market share by units sold, divide the units sold in that market by the company by the total units sold in the market. Then multiply by 100, and you’ll get the market share by unit percentage for that company. The information required can often be found in annual company reports and industry news sources.

Determine the market share for the other companies in the market using the same method.

Compare the market shares of the various companies to determine where your evaluated company stands in comparison.

Determine the market share of the company for several past years to look for trending data. Note whether the market share is rising or falling from year to year. Compare the trend to those of the company’s competitors. Determine the cause of the trend by examining industry news sources. Look for reasons the company gained or lost market share and the reasons the company’s competitors gained and lost market share during the same period. A company gaining market share in a contracting market may be doing so because competitors are pulling out of a failing market, while a company losing market share in an expanding market with many new competitors may still be strong compared with competitors who are losing market share at a faster rate.

Examine the state of the market itself. Look for market concentration and entry requirements when evaluating a specific company’s share of the market. A highly concentrated market has few participants, which eases market share evaluation as you can see direct effects on market share due to specific company actions such as price changes, product changes or marketing campaigns. Look at the price of entry to the market as well. A market that’s easily entered into will have more changes in competitors, which can have shaky effects on projecting future trends based on past performance.

Evaluate market share using both calculations. Share by revenue can be greatly different compared with share by sales due to the difference in price from the evaluated company’s product with those of its competitors. A company with a known brand name could have a higher share in revenue not because it is selling more units but because customers are willing to purchase the product at a higher price.