In simple terms, market share is the percentage of a company’s sales in a specific market divided by the total sales. Let’s take a simple fictional example. Company A’s yearly sales in industry X in the US are $100M. Total sales across all companies are $200M. The market share for company A in industry X is 50% (100/200). The full Information about a company’s market share lets investors know if the company is growing, declining, or stagnating. This Information also depends on the maturity of the industry. We’ll look deeper into market share and explore a few industries and their market share leaders.
As mentioned above, a market share is the proportion of a company’s sales relative to the industry.
It’s common to differentiate between geographical areas (Canada, the US, North America, Europe, China, India, etc.).
We can further separate the data into periods such as quarters and years. It allows investors and analysts to compare the same companies’ data over time and evaluate their future in the industry.
Some companies may lead the way in North America but be outside the top 5 in an Asian country. We’ll see Apple’s case later.
It is much easier to gather data on certain industries. When major players stand out, we can have a better example of the leaders. Such is the case for electronics or natural resources. We can find the information on public websites or as part of a company’s public documents.
Would you rather own a company at the top or bottom of the food chain? Companies at the top have much more power and influence. They can lobby for certain measures, dictate prices, and eliminate competition.
Suppose we take Amazon (NASDAQ: AMZN) as an example with its e-commerce segment. Their margin of revenue is very slim and unsustainable. However, Amazon gets its revenue from a multitude of sources.
It can afford to set the lowest possible prices to attract as many consumers as possible. When a company starts in the e-commerce industry, it must compete with the leaders and their prices while competing for existing market share. It isn’t easy for early-stage companies.
Market share doesn’t only depend on the company. It also depends on the industry.
1. Mature Industry
A mature industry such as oil will have very few fluctuations in market share. Most of the companies have been established for decades. New companies can immerse and serve their domestic needs. There isn’t much growth left in the industry unless there is a massive breakthrough or technological development.
2. Cyclical Industry
A cyclical industry is sensitive to business cycles. When the economy is doing well, revenues increase, and vice versa. The cell phone industry can be considered cyclical. New models will generally be released before the winter holidays or during periods of prosperity. Many factors can affect a cyclical industry, and the competition among all the companies is intense. As a result, there can be big changes in market share in a short period. Newcomers can quickly capture consumers’ thumbs with target ads, good timing, and quality products for lower prices.
3. Growing Industry
Growing industries are at the early stages of their lifecycle. We can take space exploration and travel as an example. At the moment, very few of these stocks exist. Virgin Galactic (NYSE: SPCE) is a rare example. Others, such as Blue Origin and Space X, are still private. The market share is still far from being defined. The momentum can shift from one company to the other in days.
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Innovate with New Technology: Companies that give funds to their research & development teams can develop better technologies internally. It allows them to bring new technologies to the market. Consumers love new technologies and always want the latest gadgets.
Lower Prices: Lower prices can help attract customers from competitors, as long as the quality doesn’t deteriorate. This doesn’t apply to luxury brands (Rolex, Gucci, Louis Vuitton, etc.) or monopolistic industries.
Higher Quality: If lowering the prices isn’t an option, maybe increasing the quality and the price is. It’s better to buy something that will last longer instead of buying the same product every few months.
Advertising: Short, poignant, and straight to the point. Ads need to be specific and target a specific audience. Apple and beer companies have been specialists in the last decade.
Customer Loyalty and Strong Relationships: Companies that give back to their loyal customers can benefit greatly. This can be in the form of exclusive offers, newsletters, rebates, and demo products. Building an online community also helps to spread the news. Customer retention is very important in today’s competitive market.
Employee Benefits: It takes skilled employees to build a brand. Nowadays, salaries aren’t sufficient. Stock benefits, monthly group activities, quarterly challenges, and continued education greatly help the development of employees.
Mergers & Acquisitions: If you can’t beat them, join them. Tech companies have been especially busy in this department. They account for the majority of M&As in the US. Every little detail counts. Improving and adding the slightest functionality can make a difference.
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Before buying a stock, looking for companies trying to improve their market share is a must. No public company should be satisfied with its current status. Therefore, it is always imperative to reach for more. Consumers look for those innovations, as should investors.
Now, look at market share leaders in different industries and locations.
1. Smartphones
The market share for smartphones varies across the globe. In North America, Apple (54%) and Samsung (28%) dominate.
Apple’s percentage has been slowly growing in the last five years at the expense of LG. All other providers remain in single digits. In Europe, Samsung (33%) is ahead, followed by Apple (27%).
They have been battling for years. Xiaomi (15%) has been getting much attention and surpassed Huawei. Worldwide, Samsung and Apple have been competing for the biggest share for years.
Once again, Xiaomi is slowly gaining market share and is the up-and-coming newcomer. Keep an eye on the Google Pixel as well.
It is such a competitive industry. Most providers release their products at the same time. Pricing can also be a huge battle. Apple isn’t even in the top 5 in some poorer but bigger countries like India. Cheaper companies like Xiaomi and Oppo dominate.
2. Car Manufacturers
Car manufacturing and sales have decreased since 2019 due to a chip shortage and supply chain issues.
Things won’t go back to normal until next year. A battle between Toyota, Ford, and GM is in full swing in the US.
Thanks to the North American Free Trade Agreement (NAFTA), most foreign manufacturers aren’t allowed in North America.
German, Japanese, and Korean cars are the big exceptions. As a result, many European manufacturers can’t access one of the biggest markets in the world.
Stellantis, Honda, Nissan, Hyundai, Mercedes, and BMW lag behind the top 3. However, in the last few years, Tesla has experienced the biggest growth in the industry.
Toyota leads globally, followed by Volkswagen, Renault, Stellantis, and Kia. Finally, GM finds itself 6th after losing two positions on the global ranking. Moreover, most of these stocks have taken a beating since 2020.
Once their shipping and manufacturing issues are under control, look for a rebound. However, the race doesn’t end there. Many manufacturers are competing with Tesla in the electric vehicle market. So, who will come on top and challenge Tesla?
3. Other Industries
Many other industries, such as soft drinks (Coca-Cola and Pepsi), household brands (Proctor & Gamble, Johnson & Johnson, and Unilever), or alcoholic beverages (Diageo, Constellation Brands, and AB InBev), have many players fighting for the top spot of their sector.
Newcomers will unlikely dethrone the big players. These can be considered value stocks. There isn’t significant growth to be expected in the upcoming years.
Finding stocks and industries with plenty of growth is the key to market share. But unfortunately, identifying the current and future leaders is the most difficult part.
Many new industries, such as space travel and exploration, cannabis, psychedelics or exploration, mining, and developing new or rare resources, are excellent examples. However, many companies are in the game, and the leaders aren’t quite defined yet.
To conclude, we use market share to determine which company sells most products in a specific industry and geographical area. There are many benefits for companies that have the most market share. However, there are also key areas to develop to maintain and grow market share.
These depend on the type of industry the companies operate in: mature, cyclical, or growth. Value investors will often put their money in mature and cyclical industries. On the other hand, growth investors seek a riskier path with growth stocks. In the latter, the market leaders aren’t clearly defined yet.
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