What is "Market Share" and why it is important in business?

Market share is the percentage of a market (defined in terms of either units or revenue) accounted for by a specific entity.

Increasing market share is one of the most important objectives of business. The main advantage of using market share as a measure of business performance is that it is less dependent upon macroenvironmental variables such as the state of the economy or changes in tax policy. 

Purpose

Market share is a key indicator of market competitiveness—that is, how well a firm is doing against its competitors. This metric, supplemented by changes in sales revenue, helps managers evaluate both primary and selective demand in their market. That is, it enables them to judge not only total market growth or decline but also trends in customers’ selections among competitors. Generally, sales growth resulting from primary demand (total market growth) is less costly and more profitable than that achieved by capturing share from competitors. Conversely, losses in market share can signal serious long-term problems that require strategic adjustments. Firms with market shares below a certain level may not be viable. Similarly, within a firm’s product line, market share trends for individual products are considered early indicators of future opportunities or problems. 

Boston Consulting Group (BCG) have develop a matrix to classify the four categorys of Market Share of a product or "Business Areas" .  This matrix let classify the growth and the market share on 4 groups.

Taken from:  http://en.wikipedia.org/wiki/Market_share

Comment:

The market share is a very important thing to measure, you can´t know how good or bad is your organization if you doesn´t compare it with the others. The products and enterprises have a life cycle in which they born, grow, have a mature and finally die. The market share is very related to the life cycle. There are 3 main concepts that people must know about market share:

-Market potential: It refers to the quantity of product that people are willing to buy. The total market potential is the one that all the enterprises that offers that product are going to fight and try to supply.

-Sales forecast: It is how much our business expects to sell. It is determinate by past sales records and considering how much it will grow or descend.

-Market share: Is the comparison between the market potential and the sales forecast; with this you could know how much of the demand is not being supply, so your business could plan actions to supply it.

The market share is a very important tool, every marketing department should have a forecast of it, because it helps to improve sales and strategic plans.

Diego P