Market Share Loss – Definition – and How to Avoid


You can consider the loss of market share for your company as one of the early indicators of the failure and collapse of your company if it continues to operate in the same manner.

Loss of market share refers to the percentage of decrease in the company’s share of the market. Loss may occur in a certain type of market share of the company, such as the share of revenue or sales volume in the market. This indicator is calculated over a specific period, usually annually.

Loss in market share is a risk that indicates a defect within your company that you must fix or that the company will gradually collapse. This article will show you all aspects of this topic. Let’s start

What does the loss of market share mean?

Market share is one of the most significant indicators of business success. 

You can use this indicator to measure the effectiveness of various revenue-generating efforts, like marketing campaigns, product development, expansion, innovation, branding initiatives, and much more. 

Therefore, the loss of the company’s market share indicates a decline in one or more aspects of the company’s activities.

Loss in market share is the decline in the company’s current market share from the market share in a previous period.

Change in market share = market share during the current period – market share during the previous period

If the change in the market share is a negative value, there will be a loss in the market share, and if its result is a positive value, there will be a growth in the market share.

Market share is the percentage of total sales in an industry generated by a particular company. 

Market share is calculated by taking the company’s sales and dividing it by the total industry sales during the same period. 

You can use this metric to get a general idea of ​your company’s size concerning its market and competitors. 

The market leader in the industry is the company that has the largest market share.

Example: If the company’s revenue for a particular year is $1 million and the industry’s total revenue is $200 million, its market share is 0.05%. Usually, a high market share corresponds to a company’s profitability.

Why is the loss in market share indicator important?

Following the market share loss indicator, is vital because this indicator will show you the degree of your company’s loss in the market against your competitors, which knocks the minus of danger early to avoid mistakes and change the work style.

Therefore, following this indicator makes you follow the market situation and its various changes, such as the entry of new competitors, or a change in the consumption pattern of customers, or the reluctance of customers from your company’s products.

In general, the loss in market share indicator derives its importance from the importance of market share. In the next paragraph, we will review the importance of the market share indicator for your company.

Why is market share important?

In a Harvard study titled The Profit Impact Project for Market Strategies, business scholars identified 37 major impacts on profit, of which the most important is market share. Simply put, market share is a significant indicator of a company’s competitiveness. 

When a company increases its market share, this can improve its profitability. Because as companies get larger, they can also expand, thus offering lower prices and limiting the growth of their competitors.

Overcoming competitors is the main measure of a company’s strength and continuity. 

Companies may go so far as to operate at a loss in some divisions to drive out competitors or force them to go bankrupt. After this point, the company may increase its market share and increase prices further.

Market share can greatly influence stock prices in financial markets, especially in cyclical industries when tight margins and fierce competition. 

Any noticeable difference in market share may lead to weakness or strength in investor attitude.

Market share is also a great way to measure the success of your organization against your competitors. Depending on your share of the total business in a specific niche, you can measure the effectiveness of your strategies and their strategic implementation.

Despite its evident and decisive importance, market share is not given the priority it deserves. Many companies focus on brand awareness, loyalty, customer satisfaction, leads, and other internal metrics. It’s okay, But as a result of all these factors is the market share indicator.

Finally, neglecting the market share indicator is unreliable to judge your business performance, especially if you work in a highly competitive field.

How to calculate the loss in market share of your company?

Loss in market share is the decline in the company’s current market share from the market share in a previous period.

Change in market share = market share during the current period – market share during the previous period

If the change in the market share is a negative value, there will be a loss in the market share, and if its result is a positive value, there will be a growth in the market share.

How to calculate the company’s market share?

To calculate a company’s market share, first select the period you want to examine. It can be a commercial quarter, a year, or several years. 

Next, calculate the company’s total sales during that period. Then find out the company’s industry total sales. Finally, divide the company’s total revenue by the industry’s total sales.

Investors can obtain market share data from various independent sources, such as trade groups and regulators, and often from the company itself.

For example: suppose you want to calculate a game manufacturer’s market share during one fiscal year. 

The game manufacturer’s total revenue was $20 million, and the game industry’s total revenue was $200 million within one fiscal year. To find the game manufacturer’s market share, divide $20 million by $200 million. The market share of the manufacturer is 10%.

How to avoid or limit the loss in market share?

But before we tell you how to avoid loss, let us first know what the causes of loss are and what are the reasons for the collapse of market share and competition, which are as follows:

Reasons for losing market share:

A business can lose market share to other companies for many reasons, such as the emergence of new competitors in an industry that can erode its market share. 

Events that affect the public’s perception of a company and its products can also erode market share. 

For example, suppose a report is released showing that a particular fast-food chain does not follow federal food safety guidelines. In that case, some consumers may avoid that chain, eroding its market share. 

Poor product quality or changes in technology, and changes in consumer preferences can also erode market share.

Also, loss of market share may mean increased or decreased competition. When a large company loses market share, small companies gain market share, leading to more competition.

On the other hand, if small companies experience erosion in their market share, it may mean that larger firms are increasing their market shares. 

If market shares fall too low, firms may become unprofitable and drop out of the market, reducing competition.

How to avoid or limit the loss in market share?

If you are looking to expand your company and focus on profitability and loss avoidance, you should pay attention to increasing your market share. Here’s how the big companies do it:

Stay connected through innovation:

Let’s talk about Google, which currently has a 90.8% market share in web, mobile, and in-app searches. Yes, this is correct. You may be wondering – how did Google manage to monopolize the market and not have a real competitor? The strategy lies behind staying relevant through innovation.

Embracing flexibility:

We know it – we can be more creative when we have a more flexible work schedule. 

Many companies veered into the 9-5 shift and adopted a more generous and carefree working environment for their employees. 

In today’s tight job market, helping your employees achieve a work-life balance is more essential to retaining employees than giving them competitive salaries. 

Take it from these companies that value “fair” and “flexible” work environments. “No wonder they have some of the best talents in the world.

Practice promotional innovation:

A startup in financial tracking has proven that it can stand out from the competition by adopting well-executed Internet marketing strategies. 

Entering the saturated financial management industry is not easy at all, let alone mastering it. But by posting hundreds of high-quality content, from informative blog posts to helpful infographics and viral videos, they find new customers and grow their business.

Acquisition of a competitor:

Mergers and acquisitions are common among big companies these days. Perhaps the easiest way to increase your market share is to capture your competitors. 

If your business does not have the means to purchase another company, consider getting their salespeople as sometimes, customer loyalty lies with the company’s salespeople, not the brand. 

Another way (which isn’t an acquisition but has a similar effect), buy a competitor’s customer list if they’re going to close soon; this gives you a larger customer base.

Planning to increase market share:

Increasing the brand’s market share, in general, will be one of the most important things that any top management tries to achieve. 

However, it will not be an easy task. Ask any successful entrepreneur, and they will reveal that increasing a company’s market share is a long and never-ending process. 

Here are some tried and tested ways to secure a more significant market share for your business:

Make customer engagement a part of your core business practice. It will not only help in retaining existing customers but can also attract new customers at a reasonable pace.

Use effective communication strategies and means to disseminate content through direct communication platforms such as social media and email. 

Encourage your target customers to respond by posting or commenting. Use surveys smartly for feedback.

The process of increasing your company’s market share is long and ongoing. By using some of these tried and tested strategies of some of the most successful companies in the world today, you can also expand your company’s reach, increase your market share, and generate more profits.

For more information, you can refer to the market share growth article.

Conclusion

Loss of market share refers to the percentage of decrease in the company’s share of the market. The loss may occur in a specific type of market share, such as the share of revenue or sales volume in the market. This indicator is calculated over a particular period, usually annually.

Loss in market share is the decline in the company’s current market share from the market share in a previous period.

Change in market share = market share during the current period – market share during the previous period

If the change in the market share is a negative value, there will be a loss in the market share, and if its result is a positive value, there will be a growth in the market share.

A business can lose market share to other companies for many reasons. The emergence of new competitors in an industry can erode its market share. Events that affect the public’s perception of a company and its products can also erode market share.

For example, suppose a report is released showing that a particular fast-food chain does not follow federal food safety guidelines. In that case, some consumers may avoid that chain, eroding its market share. Inferior products or failure to adapt to changes in technology and consumer preferences can also erode market share.

The loss of your company’s market share is often considered one of the early indicators of your company’s failure and collapse if it continues to operate in the same manner. Therefore, you need to monitor this indicator periodically.


Source:

Market Share

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