A Business Encyclopedia

Market Share Method

Definition: The Market Share Method is yet another sales forecasting method, wherein the company first works on the industry forecast, then applies the market share factor and then finally arrive at the company’s forecast. Simply, the company’s sales forecast is deduced from the data gathered on the industry sales and from the market share of the company.

The market share of the firm is the key factor in this method, and it can be determined through the past sales records, company’s present position – its plans for future, competitor’s sales records – its plans and marketing strategies, customer’s brand preferences, etc.

All this information can be collected through a detailed marketing audit. What is Marketing Audit? A marketing audit is the systematic and comprehensive analysis and interpretation of the business marketing environment (both internal and external), firm’s goals, objectives, strategies and principles that help in identifying the area of problem and recommending the solutions thereto.

Through a marketing audit, the firm can realize its relative brand image, market share and strengths and weaknesses with respect to its competitors in the industry. Not only through the marketing audit the firm can access to the competitor’s plans, policies and activities through a market intelligence system.

What is Market intelligence system? It refers to the systematic collection of the relevant marketing data from all the possible sources and then converting it into the meaningful information. Through this, the complete information about the competitors could be gained from the channel partners, who are closely associated with the market and have all the details about all the industry players.

Thus, the market share method includes the complete study of the industry forecast and the market share of the company, that helps in deducing the final company’s sales forecast. This conversion from industry forecast to the company specific sales forecast is quite difficult and hence requires the expertise. Once the market share is determined, the data is consolidated to reach to the company’s forecast.

The limitations of the market share method are:

  • The conversion of industry forecast to the company specific sales forecast is quite tedious and hence requires the expertise.
  • It is a complex process as the entire business environment is scrutinized before reaching to the final forecast.
  • The wrong information about the marketing environment may result into a wrong sales forecast.

One of the advantages of this method is that it uses the market share to reach to the company’s sales forecast, and this market share is deduced from a detailed study of the business marketing environment and hence, is considered to be the most reliable forecast.

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