Question

Relative market share=The raw market share of the companyThe raw market share of the largest competitor

Please write True or False to two statements below.
#1. The relative market share of the dominating company is bigger than 1:
#2. The relative market shares of the follower companies are smaller than 1:

Answer 1

Market share is the amount of the market that is controlled by a single company. It is a strong indication of how a company is doing within a given market or industry. For many companies, increasing market share is a key objective. Not only does a higher market share mean that a company is doing more business, but it also influences the way investors perceive that company. A company with a declining market share might be viewed as undesirable from an investment standpoint, whereas a growing market share is indicative of a company's overall strength. For example, in the Indian telecom market, Reliance Jio holds the largest market share of 31.7% in 2020. In 2019, the market shares of different telecom companies in India were as follows:-

• Reliance Jio - 32.14%
• Vodafone Idea - 28.89%
• Airtel - 28.43%
• BSNL - 10.26%
• MTNL - 0.29%

Hence from the above results we can clearly see Reliance Jio is the dominant company or the market leader in the Indian Telecom sector.

Absolute market share shows how a company is faring in terms of its competitors. It also enables outside investors to evaluate a company's performance in the context of a larger market. Market share is calculated by taking a company's sales over a specified period of time (such a year or quarter) and dividing it by the total sales of that company's industry over the same period. Let's say you want to calculate the market share for Company X, a producer of coffee makers, over the course of one year. If the company had total revenues of $10 million during that period, and the coffee maker industry had total revenues of $100 million during that period, you'd divide $10 million by $100 million to arrive at a 10% market share for Company X.

Relative market share shows how a company is faring in terms of its leading competitor. Relative market share is an important calculation because it gives a company's absolute market share additional context.

Relative market share is a marketing metric used to compare the firm’s market share to the largest competitor in the market. When calculating relative market share, the market leader’s market share is used as the benchmark.

The formula for relative market share is:

% Market share of the firm’s brand / % market share of their largest competitive brand in the market

EXAMPLE FOR CALCULATING RELATIVE MARKET SHARE

Let’s assume that there are just five brands in the marketplace and their unit market shares are given below.
As Brand A is the market leader, it is used as the benchmark to calculate the relative market share metric for all the other brands - in other words it sits at the bottom (i.e. as denominator) of the formula calculation.

The exception is when calculating relative market share for the market leader itself (Brand A in our example), which is compared to their largest competitor. This is demonstrated in the following table:

Relative market shares :-
The calculation of relative market shares for each of the brands is as follows:

• Brand A = 40%/30% = 1.33
• Brand B = 30%/40% = 0.75
• Brand C = 20%/40% = 0.50
• Brand D = 6%/40% = 0.15
• Brand E = 4%/40% = 0.10

1. From the above results, as we can see, all brands are compared against the market share of the market leader, except, for the market leader itself, which is compared against their largest competitor (the 2nd ranked brand in the market i.e. the Brand B in this example).
2. And there can only ever be one brand/firm that has a relative market share greater than one. This will be the market leader only. All other brands (or firms) will have a relative market share of less than one. And many other small brands will have a very low relative market share figure.

Similarly, if we take the above example of the Indian telecom market, since, in 2019 Reliance Jio is holding the largest market share it is clearly the market leader with 32.14%. Its next biggest competitor is Vodafone Idea which has market share of 28.89%. The relative market share of the Reliance Jio is calculated with respect to its next biggest competitor Vodafone Idea.

Therefore, the relative market shares of the Indian Telecom companies are as follows:-

1. Reliance Jio :- 32.14% / 28.89% = 1.11
2. Vodafone Idea :- 28.89% / 32.14% = 0.89
3. Airtel :- 28.43% / 32.14% = 0.88
4. BSNL :- 10.26% / 32.14% = 0.32
5. MTNL :- 0.29% / 32.14% = 0.009

In the Indian Telecom market, we can clearly see, Reliance Jio which is the market leader or the dominant company has only relative market share greater than 1 i.e. 1.11. All the other telecom cos. in the same industry, which are actually the follower companies have relative market shares lesser than 1.

1. The relative market share of the dominating company is bigger than 1 - TRUE
2. The relative market shares of the follower companies are smaller than 1 - TRUE