What Is Incremental Market Share?
Incremental market share refers to the additional portion of total market share that a company gains over a specific period. It is a key marketing metric used within business strategy to assess a company's growth relative to its competitors in a defined market. This metric quantifies the increase in a company's sales or revenue that comes from capturing a larger slice of the existing market, rather than solely from overall market expansion. Understanding incremental market share is vital for evaluating the effectiveness of a company's competitive strategies.
History and Origin
While the concept of market share has existed informally for centuries among traders and merchants, its formalization as a strategic business metric gained significant traction in the mid-20th century. Pioneers in strategic management, particularly firms like the Boston Consulting Group (BCG), popularized frameworks that heavily relied on market share analysis. Bruce Henderson, the founder of BCG, introduced "The Product Portfolio" (also known as the BCG Growth-Share Matrix) in 1970. This framework positioned relative market share as a critical dimension for evaluating a company's product portfolio. The underlying philosophy was that gaining market share, especially in growing markets, could lead to significant profitability and economies of scale, laying foundational thinking for metrics like incremental market share.7,
Key Takeaways
- Incremental market share measures the additional market percentage gained by a company over a specific period.
- It reflects a company's success in capturing sales from competitors or a disproportionate share of new market entrants, beyond general market expansion.
- This metric is crucial for assessing the effectiveness of competitive strategies and resource allocation.
- A positive incremental market share often indicates a strong competitive advantage and effective marketing efforts.
Formula and Calculation
Incremental market share is calculated by determining the change in a company's market share between two periods.
The formula is expressed as:
Where:
- Current Market Share = (Company's Current Sales / Total Market Sales in Current Period) × 100
- Previous Market Share = (Company's Previous Sales / Total Market Sales in Previous Period) × 100
Both the company's sales and the total market size must be consistent in their measurement (e.g., in units or revenue) for accurate comparison.
Interpreting the Incremental Market Share
Interpreting incremental market share involves more than just looking at a percentage change. A positive incremental market share indicates that a company is successfully taking business from its rivals or capturing a disproportionate share of any new market growth. This suggests effective business strategy and strong competitive advantage.
Conversely, a negative incremental market share means the company is losing ground to competitors, even if its absolute sales are growing due to overall market growth. Analysts evaluate this metric in conjunction with total market size and market dynamics to understand the full picture of a company's performance. For instance, a company might increase sales but lose incremental share if the overall market is expanding at a faster rate, meaning its growth is not keeping pace with the industry.
Hypothetical Example
Consider "EcoMotors," an electric vehicle manufacturer. In Year 1, the total EV market had 5 million units sold, and EcoMotors sold 500,000 units, giving it a market share of 10%. In Year 2, the total market grew to 7 million units. EcoMotors, through successful marketing efforts and appealing product innovation, managed to sell 840,000 units.
First, calculate EcoMotors' market share in Year 2:
- Year 2 Market Share = (840,000 units / 7,000,000 units) × 100 = 12%
Next, calculate the incremental market share:
- Incremental Market Share = Year 2 Market Share - Year 1 Market Share
- Incremental Market Share = 12% - 10% = +2%
This +2% indicates that EcoMotors not only grew its sales in an expanding market but also increased its proportion of the overall market, successfully gaining ground on competitors.
Practical Applications
Incremental market share is a vital tool in strategic planning and competitive analysis across various industries. Companies use it to gauge the effectiveness of new product launches, pricing strategy adjustments, or marketing campaigns. A positive incremental market share can signal successful market penetration and increased customer loyalty.
For example, in the automotive industry, manufacturers constantly monitor incremental market share to assess competitive positioning. Recent reports have highlighted shifts, such as Tesla's market share in Europe dropping despite an overall rise in EV demand, indicating that other brands are capturing a larger share of the new market growth. Th6is demonstrates the importance of understanding whether growth is coming from market expansion or competitive gains within a specific target market. Businesses also use this metric when considering market entry strategies, as assessing potential incremental share is critical for estimating viability and competitive response.
#5# Limitations and Criticisms
While useful, incremental market share has limitations. It provides a snapshot of competitive performance but doesn't inherently account for profitability or the cost of gaining that share. A company might aggressively lower prices or significantly increase marketing efforts to gain incremental share, which could erode profit margins. Cr4itics argue that focusing solely on market share metrics can be misleading if not viewed in conjunction with other financial indicators. The MIT Sloan Management Review notes that while market share and return on investment (ROI) were linked in some 1970s research, the relationship is often correlational rather than causal, suggesting that superior products might lead to both high market share and high profitability, rather than market share causing profitability. Ad3ditionally, accurately defining the exact market size and its various segments can be challenging, impacting the precision of the incremental market share calculation.,
2#1# Incremental Market Share vs. Market Share
The primary distinction between incremental market share and market share lies in their focus: one is a static measure of presence, the other a dynamic measure of change. Market share represents a company's total proportion of sales or revenue within a defined market at a specific point in time. It answers the question, "What percentage of the market do we currently own?"
In contrast, incremental market share measures the change in that percentage over two periods. It addresses, "How much more (or less) of the market did we capture compared to the last period?" While a high market share indicates a strong market position, a positive incremental market share signals that a company is actively strengthening that position or improving its standing relative to competitors, even if the overall market size is not growing rapidly.
FAQs
Q1: Why is incremental market share important for a business?
A1: It's important because it shows whether a company is effectively competing and gaining ground on rivals, rather than just growing due to overall market growth. It helps evaluate competitive strategies and resource allocation.
Q2: Can a company have growing sales but a negative incremental market share?
A2: Yes, this can happen if the overall market size is growing very rapidly, and the company's sales are increasing, but not as fast as the total market. This means other competitors or new entrants are capturing a larger proportion of the