Market growth is the rise in the demand for a product or a service in the market. Usually, market growth happens when a company is in its expansion phase. Companies try to increase the product’s value, promote features, and sometimes offer attractive pricing to increase sales.
An excellent example of market growth is the ever-growing demand for Apple products. With its innovative features, attractive design, and premium pricing, Apple has seen steady growth in demand over the years.
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What Is Market Growth?
Market growth is the increase in size, value, or volume over time, reflecting how well an economy, industry, or business is progressing and growing. An expanding market is a positive sign for an economy as it suggests the economic landscape is improving. More money flows into businesses, leading to increased income and employment for those involved.
It’s also an indication of the success of a company or sector in terms of investment and innovation, which can lead to more significant long-term economic growth if managed correctly. It is essential for investors and business owners when planning for their future success. It is essential to understand its trends to make informed decisions about investments.
The predicted percentage growth for your industry over a specific period is the market growth rate. Market expansion can be driven by population growth, technological advancements, rising consumer spending, innovation, and new product launches.
Key Takeaways!
- Market growth is the expansion of a market in terms of its size, value, or volume over some time.
- It can be measured in market share, revenue, and customer base.
- Its study is essential to understand the progress of an economy or company.
Why is Market Growth Rate Important?
It is essential because it helps to identify the current and potential status of the product or service in terms of demand. For example, if a product has been around for some time and the market growth rate is low, the product or service is currently at a saturation point or is declining. Similarly, if the growth rate is high, the product or service has the potential for rapid growth in the future.
It also helps to identify the performance of the company’s sales, its competitors, and its place in the market. Companies can use this information to develop strategies to help them stay ahead of the competition.
Therefore, the market growth rate is essential for assessing economic growth and understanding consumer behavior. It helps companies plan their future marketing efforts and decide pricing policies, product development, and distribution channels. It can also be used to measure the performance of the company in comparison with its competitors. It helps companies understand their place in the industry and make necessary changes to stay competitive.
Understanding this Growth Rate is essential for businesses to evaluate their product or service’s success and plan accordingly for future growth. To determine the potential market for a new product or service, it’s essential to calculate the market growth rate. This involves analyzing the sales data of the industry for the past 5-10 years and understanding if the market is growing or declining.
For example, you can determine when to launch a new product or service and how much money and effort should be invested. With this information, you can make more accurate predictions and set achievable goals for your business.
A Quick Word on Market Share
Understanding market share is critical for determining your company’s competitive positioning. Growth in your industry does not guarantee that your company will be a long-term competitor.
Consider a scenario where electric cars (EVs) are experiencing increased demand due to environmental concerns. Among the different items, let us concentrate on solar-powered charging stations. The desire for home charging solutions over public stations is increasing. Does owning a sizable piece of the solar-powered station market ensure success in the booming EV sector? It is uncertain. This scenario demonstrates how changes in consumer preferences affect your market share. Thus, determining your market share is critical for developing an effective business strategy.
Here’s the equation:
(Your company’s sales/total industry sales) multiplied by 100
If you have not launched your product or business yet, you would modify this slightly:
(Your expected company sales / total industry sales) multiplied by 100
Understanding market share shifts focus to the amount of market expansion and its effects on consumers.
Why Does Market Growth Matter?
Market expansion is significant because it predicts the future relevance and demand for your products or services. Consider your company’s potential longevity; will your offerings reach a larger audience in the future?
This foresight is essential not only for internal planning but also for attracting investors. Investors are interested in understanding your industry’s future path and whether entering the market now makes economic sense. Furthermore, for established organizations, assessing current market size and growth rates is quite beneficial. It aids in deciding whether there is room for additional growth or if it is time to adapt and innovate.
For example, established print media outlets have found opportunities for expansion in digital platforms, demonstrating the need to adjust to market growth trends.
Formula to Calculate Market Growth Rate
There are two methods for calculating it –
- Using the compound annual growth rate formula
- Using the absolute growth rate formula
Calculating the compound annual growth rate (CAGR) is a standard method, but other options are available. CAGR is the percentage rate of return on an investment over a specific period based on its initial and final values and duration.
CAGR = (FV / PV) ^ (1 / n) – 1
where FV = future value of the investment, PV = present value of the investment, and n = number of years of investment
Another way to calculate market expansion is by using the absolute growth rate formula. This formula involves dividing the difference between the final and initial values of the market by the initial value and then multiplying the result by 100.
Absolute growth rate = (Final value – Initial value) / Initial value * 100
You can calculate the market growth rate accurately and efficiently using these formulae. This will help you decide how to further increase market share for your business in a particular period. It is also essential to track it regularly as it helps assess the company’s performance and make necessary changes.
Types of Market Growth
It can take many forms, depending on the industry and product. Generally, it will involve increasing consumer demand for a particular product or service and expanding it into new markets.
This can involve increasing market share in an existing market or expanding to a new global economy. In either case, it indicates an increase in the average growth rate for a particular product or service. Let’s have a look at different types of market growth:
- Demand: Demand is the customer’s need for the product or service in the market. The demand for the product depends on various factors, including the product’s price, market conditions, competitor products, and trends in the market. Hence, a rise in demand increases market growth.Thus, demand is directly proportional to the development. However, compared to the competition, if the need for competitor products increases, it will affect the demand for your product, and even if the market may grow, you will not.
- Supply: As the supply increases, the product’s price goes down; on the other hand, as the supply reduces, the cost of the same product climbs significantly higher. As the product price increases, the growth rate increases because the customers have to pay higher prices for the same product.As the supply increases, the growth rate is affected differently. There could be negative market growth if the product’s price keeps falling or customers find alternative products.
- Premium pricing: The regular pricing of products will change if they are priced at a premium. There could be differences in the product or this higher-priced variant of the same product. Premium pricing has a backup reason to differentiate it from other options.For example, in the aviation industry, the price of seats in a flight varies depending on the position. The same flight may have seats priced at $400 and $800. The difference will be in additional features such as leg space, priority baggage, etc. Market growth will increase as the demand for premium-priced products or services increases.
- Performance: The product with a higher performance will have a higher selling price. The selling price would boost the market growth. There could be different reasons for high performance, but the matter of fact is it positively affects the growth rate. For example, other brands have different phone variations in the case of mobile phones, and the pricing of all the changes depends on the performance. In the case of the Apple iPhone, the latest model will always be the most expensive one, and the earlier models will be cheaper. The latest models will bring higher revenue to the organization and increase market growth.
- Commoditization: When a customer purchases based on the pricing of the product, then it is called commoditization. This happens because the customer sees a few differences in the products. This usually occurs when a new technology or product is launched, making the current products obsolete. For example, when DVD players were launched, the prices of VCRs and CD players fell significantly. Similarly, when an iPod was launched, the cost of cassette players dropped significantly.
- Inflation: Inflation is one of the significant influencers of market growth. A market growing at a certain percentage, say 5%, was not necessarily growing in product sales. This will affect market growth directly. Inflation results from unfavorable factors and always negatively affect market growth for most products or services. Inflation is a common factor every product must tackle at least once to defend market growth.
- Demographics: The target market changes size for different products or services. Diverse populations of age will have various demands for products. For example, a young population with a massive demand for the latest products like mobile phones, accessories, and fashion trends. On the other hand, the senior population will need medical supplies. Thus, market growth varies according to population growth and demand.
How to Increase Your Market Presence
Different tactics can be used to channel the market growth for a business or industry, such as
1) Expanding into new markets
This strategy involves entering a new market with a novel product or service. It’s an effective way to increase the market presence of your business and tap into new consumer bases.
2) Launching a new product or service
This is a great way to capitalize on current technology trends or create something unique. Introducing something new can breathe life into your business by helping you reach a wider audience.
3) Enhancing customer experience
Improving the customer experience is essential for any business looking to increase its market presence. Product quality should be a top priority to ensure customers receive the best possible service.
4) Leveraging digital channels
In today’s digital world, leveraging and maintaining the power of social media and other online channels can effectively increase your business’s market presence. Utilizing these channels for marketing, customer service, and product promotion can help you reach a larger audience.
5) Expanding market share
This involves strategies such as positioning yourself in a favorable market, adjusting pricing and product offerings to meet customer needs, and engaging in strategic partnerships. Optimizing the market share of your business can help you reach more potential customers.
Market Share Vs Market Growth
- Market share is the percentage of a company’s market, while market growth represents the increase in the overall market size.
- To measure a company’s market share, you need to compare its sales or market share with the industry’s total sales or market share. On the other hand, to evaluate market growth, you should compare the current market size with the previous or predicted future size.
- Companies can focus on aggressive marketing and advertising strategies such as discounts and promotions to increase market share. On the other hand, they must develop innovative products and services, appropriate pricing strategies, and effective market development tactics to increase market growth.
- By increasing their market share, companies can become dominant within the industry. However, market growth is essential for sustained success in the long run.
Examples
1) Theoretical Example
Let’s assume the new product is a mobile app, and its market share at launch was 12%. In the first three months, the app sees a rapid increase in its market share, reaching 24% by the end of the period. This is an example of market growth.
However, in the following months, the growth rate begins to slow and reaches a plateau of 30% after nine months. As competition intensifies in the mobile app space, it becomes more challenging for the company to acquire new customers and increase its market share.
To maintain its growth, the company must focus on developing and innovating its product and expanding into new territories to reach new customers. Ultimately, the company must ensure it provides value to its existing customers and stays ahead of the competition to achieve market growth.
The company can increase its market share and remain competitive by doing so. This helps them sustain growth over time and attract others, allowing them to continue generating revenue and expanding their business.
2) Calculation Example
The sales of ABC in 2010 were $100,000 and will increase to $200,000 by 2020.
CAGR = ((200000/100000)1/10 – 1) * 100= 9.54%
The above example indicates that the company ABC had a CAGR of 9.54% from 2010 to 2020, which means that the company has experienced an average annual increase in sales of 9.54%. This growth can be attributed to the company’s market positioning, promotional efforts, product mix, and other factors.
How are market growth statistics useful?
Market growth statistics are essential to company strategy, supporting established and growing businesses in finding profitable areas and possibilities to fill market gaps with innovative products or services. As seen in worldwide revenue, an upward trend in market growth indicates a robust market with rising fiscal potential, making it an appealing proposition for enterprises.
Enterprises can analyze their performance by comparing the market’s growth rate. This activity allows firms to assess the effectiveness of their development strategies and marketing approaches.
Successes discovered and measured through this method can help firms set growth goals, while failures may lead them to examine operational tactics and resolve potential flaws. Noticeable decreasing patterns may suggest a company faces issues that require rethinking inefficient methods and their subsequent optimization.
Enterprises can use a variety of indicators to determine their market growth. Some of these include:
- Revenue: Revenue, or a company’s total sales, is sometimes used to calculate the rate at which a firm or market grows. Industry groups and boards have provided consistent worldwide market revenue statistics for several years. This data enables analysts to reasonably understand a market’s or enterprise’s financial health by examining positive and negative variations over time.
- Market share: It is the fraction of the market that an organization dominates, either generally or about a specific product. An analyst can calculate this statistic by dividing it by the total market revenue and presenting it as a percentage. Changes in market share can be particularly useful in determining the long-term viability of a business in any given market.
- Internal growth rate: Organizations can calculate their internal growth rate by dividing net income by average total assets over time and comparing the results. This determines if a company’s internal growth can match market growth or if operational changes are required.
- Active users: For organizations that provide online services such as social media platforms, websites, or games, the active user count can be a valuable measure. The growth and fall of a brand’s user base over time can be monitored using daily or monthly active user counts. An upward trend in user count frequently indicates successful marketing and increased consumer happiness. In contrast, a downward trend may require the company to expand promotional efforts or discontinue a non-profitable service.
Benefits of Market Share
Market share is an essential key indicator of a company’s competitiveness. Let us look at its benefits:
- Scale and profitability: Consider your organization a ship cruising across the commercial ocean. A huge market share is like strong winds propelling your ship quicker and more efficiently than others. This vast size of activities frequently leads to cost reductions and increased profit margins.
- Revenue Growth: If the market ocean is expanding, keeping your share is like sailing at the constant pace of the current, keeping your revenue afloat. However, growing your share is similar to catching quicker currents, resulting in revenue growth exceeding that of your competitors.
- Innovative Edge: Strategically lowering pricing, engaging in convincing advertising, or updating the product line with innovation are all tactics for broadening your scope and capturing a larger market share.
- Diverse Appeal: To expand market share, you may need to plan a path for new demographics, like discovering new islands of clients, thereby increasing the richness and diversity of your market presence.
- Market Influence: A significant market share gives you a more powerful voice in the industry. It is like being a well-respected captain in the fleet with the potential to shape industry trends and standards.
Market Share Impact
Every market share matters in static or cyclical industries like automotive and manufacturing. Due to market saturation, a small change can drastically impact a company or industry’s total sales and performance. Selling at a loss to beat competitors is common in marketing and pricing tactics. Once competition decreases, the goal is to monopolize and raise prices. However, this strategy is risky and may increase losses.
Technologies and renewable energy industries are proliferating; thus, companies can increase sales even if their market share drops. Innovation and sales growth are typically more important than market share in many industries.
Market share impact is like a game of territory in two distinct landscapes: a crowded city where every inch of land matters for existence and profitability and a fast-expanding frontier town with growth potential and competition.
Market share matters depending on the industry. In static marketplaces, competitors battle for a larger share. Grow with the market in booming businesses, even if it means losing territory to competitors.
Conclusion
Market growth is essential to an industry’s health and potential, demonstrating how innovation and customer demand drive economic success. Calculating this growth enables organizations to plan for expansion and competitiveness.
Understanding the relationship between market growth and share is critical for businesses looking to successfully manage and profit from changing market dynamics. In short, mastering market growth insights enables organizations to anticipate future trends and maintain resilience in an ever-changing economic landscape.
Frequently Asked Questions (FAQs)
1) What is new market growth?
New market growth is when a company expands into an entirely new, untapped market. This means there are no competitors in this specific market, and the company can gain market share quickly. It also allows them to establish their brand, create new products, and capitalize on emerging technologies.
2) How do you measure market growth?
Market growth is typically measured using the Compound Annual Growth Rate (CAGR). You can also use absolute growth rate to measure market growth.
3) What are the signs of a mature market?
Some signs of a mature market include slower growth in sales, increased competition, new entrants slowing down, and consumers becoming more selective. Additionally, customers may be less loyal to the brands they currently use and may be willing to switch to alternative products.
4) What is a growth phase?
It is the period when a market or industry is experiencing rapid expansion and economic activity. During this period, the market’s size increases significantly, and companies can capitalize on emerging trends and technologies to gain a competitive advantage.
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