Relative Market Share compares a brand’s market share against a competitor’s market share. Relative market share gives a companies market share with respect to or relative to competitor's market share in the same market. Relative market share is an important comparison which helps companies understand their position in the market or industry. Parameters like revenue or customer base can be taken for comparing & analysing the relative market share.
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Every industry or sector has several companies which are fighting for the same set of customers. The entire population or market is hence divided among all the companies, and hence each company has their own share of the market or customers. This is referred as market share. Now market share can be on the basis of revenue or customer, and is known as revenue market share (RMS) or customer market share (CMS). RMS is also known as dollar market share.
However, when the market shares of two companies are compared, it is known as relative market share. This ratio between companies is the share of the market between two competitors. It is an indicator where one company stands with respect to either the largest company or relative to any other company.
It gives a constant comparison to companies where they are positioned in the market in terms of revenues or customers vis-a-vis the other competitors in the segment. Companies evaluate the relative market share of competitors based on information like customer base, sales or revenues for a period etc and compare it with their own performance. This comparative analysis of market share is known as relative market share.
The formula can be given as:
Relative Market Share (%) = 100 * Brand’s Market Share/ Largest competitor’s market share
Here, market share can be based on parameters like revenue, sales, customer base, profits etc. This helps to find out the relative position of the company as compared to other companies or the leader in the market. It is the ratio of a company's share versus its biggest competitor.
It is different from absolute market share. Absolute market share is calculated by dividing the sales by the total sales in the market. Absolute market share shows how much potential the firm has for growth whereas the relative market share compares the firm with its competitors.
Hence, this concludes the definition of Relative Market Share along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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