Relative market share is a metric that helps companies identify their position in the market compared to their leading competitor. The market share of the latter is their benchmark.
In this article, we’ll explain why relative market share matters, unveil the difference between this measure and market share in general, share a formula to calculate it, and offer tips to increase the metric.
Why is relative market share important?
Calculating your relative market share allows you to identify the major players and understand your position in the market. Check out the example below to have a clear picture of this metric.
For example, Company A has a 35% market share in the jewelry industry, which seems rather impressive. It means that other firms occupy 65%. If there are five top brands producing jewelry, they will split the remaining 65% among themselves, and each one will get approximately 10% market share, which makes Company A a leader.
Although, if there are three big companies producing gas boilers, Company A can have a 35% market share, while Company B has 40% and Company C has 25%. In this case, a 35 % market share no longer seems so attractive. Hence, it can make a firm either a leader in this niche or a second-third player in another industry.
You should understand that a high level of competition in such industries as logistics or retail leaves you a much lower relative market share than 35%. Relative market share helps brands predict their total performance in terms of revenue and plan their strategy accordingly.
Now let’s find out the difference between market share and relative market share.
Relative Market Share vs. Absolute Market Share
While relative market share measures the performance of a particular company in terms of the most powerful brand in the market, absolute market share helps businesses monitor their position compared to all their competitors in the niche.
Investors are especially interested in the absolute market share before offering their financial support to any brand. This measure helps them evaluate the situation on the market and predict revenue they can get. Knowing the absolute market share of each competitor provides a clear picture backed up by figures, which helps them make an informed decision.
Now that you know how relative market share affects brand success, it’s time to learn to calculate this measure.
How to Calculate Relative Market Share
You can use two formulas to determine this metric.
Relative market share = 100* firm’s market share/biggest competitor’s market share
Or you can use the formula below:
Relative market share = your firm’s sales/biggest competitor’s sales
Evaluating your relative market share allows you to monitor your success as a market leader. High market share in one industry can make you the biggest player, while the same percent in another niche will make you lag behind. With these figures in mind, you can have a clearer picture of your company’s performance, and hence, make the right decision.
If your relative market share turns out to be low, don’t give up. Follow our tips to improve the situation.
How to Increase Your Market Share
- Increase the quality of your product
- Improve your promotion strategy
- Nurture your leads effectively
- Develop a loyalty and referral program
- Decrease prices
If you enter the market with a high market share, there are no guarantees of high revenue in a year or two. We strongly recommend that you implement several strategies below into your business to keep pace with your competitors.
- Increase the quality of your product. Carry out a thorough analysis of your competitors’ products to find out their weaknesses. It can be poor customer support, problematic refund and exchange issues, no warranty or after-sales service. With this information, you know what improvements you have to make and what your customers need. Finally, you can ask them directly about what they would change to optimize your product.
- Improve your promotion strategy. A well-planned advertising campaign will help you boost brand awareness, acquire new prospects, and rocket your sales. Start with free advertising tools such as email marketing. SendPulse allows marketers to send 15,000 promotional emails every month for free. Include SMS campaigns, web push notifications, retargeting ads, and ads on socials. Choose the channel your potential clients like.
- Nurture your leads effectively. Prospects often drop off the sales funnel because they lack information on your product and customer support. Be ready to provide customers with valuable content at each stage of their journey. Consider offering demos, step-by-step guides, your most successful case studies, reviews, and short checklists.
- Develop a loyalty and referral program. Loyal clients are the most valuable for each business. They help not only maintain your average revenue but bring in new customers, and they work as word of mouth. Reward such clients with points, discounts, and personalized offers to show that you appreciate them. This way, they won’t switch your brand to your competitor’s one.
- Decrease prices. This technique won’t work to your advantage forever. Still, it helps expand your market share and attract new clients. Try offering time-limited discounts such as high-low pricing or everyday low price to create buzz around your brand.
Choose the strategy that will fit your brand best or combine them to keep your market share high.
Congrats, now you know pretty much everything about the concept of relative market share. Monitor this metric regularly and increase it with the help of SendPulse promotional tools.
- This article highlights the differences between relative and absolute market share.
- This article provides an example for calculating your relative market share.
- This article offers five ways to increase your market share.
Last Updated: 08.08.2022