The allocation of a specific market among the participating enterprises is known as market concentration. Market concentration, also known as seller concentration or industry concentration, is a term used to describe how concentrated a market is.
Using market concentration data is essential to calculate your company’s potential on the market and discover unique opportunities.
What is market concentration?
Market concentration assesses the extent to which one or more enterprises dominate sales in a given market.
The market concentration ratio calculates the total market share of all of the industry’s top companies. In the formulas, ‘Market Share’ is utilized as a reference. Sales, employment data, the number of people who use a company’s services, the number of outlets, and so forth.
The Herfindahl-Hirschman Index, or simply Herfindahl Index, is one of the more frequent methods for determining market concentration. It can help establish market domination by one or a few enterprises operating in that market. It’s computed by multiplying the square root of each firm’s percentage market share in the industry. For the ideal competition, the indication may become zero.
A concentration ratio (CR) quantifies the distribution of a market among rivals and is used to measure market concentration. The percentage of the market held by the top four corporations, for example, is expressed as CR4.
The importance of market concentration
When the market is less competitive a market, it means it’s more concentrated. A market with low concentration is deemed competitive because it is not dominated by any significant firms. Fragmented markets are those with exceptionally low concentrations.
A monopoly is defined as a single business that dominates a market; a duopoly is defined as a two-enterprise concentration. An oligopoly is defined as a situation in which more than two companies (but still a small number) control a certain market.
Concentration analysis is an important aspect of the market research stage for company planning in order to determine the viability of entering a particular market. Highly concentrated markets can arise organically or as a result of collusion and anti-competitive practices. Anti-competitive practices may also be used to deter startups and smaller businesses from entering a very crowded market.
Indeed, in recent years, variations in concentration have been frequently utilized to suggest that competition intensity is declining, and that the emergence of huge firms with significant market shares is pushing up profits, productivity, and widening inequality. Some say that the competition regulations should be amended and those unduly antitrust agencies should be prosecuted.
How businesses can improve their position in the market?
TIF recently shared that only 4% of the industries are highly concentrated —and 45 percent have become less concentrated since 2002.
Improving how a company’s target market perceives it is one strategy to increase market share. This type of positioning necessitates clear, rational communications that convey a company’s identity, vision, and desirability to current and potential clients.
Consider the following guidelines when you arrange your communications:
- Research. You need to know as much as possible about your target audience in order to know what it wants without a doubt. The more you know, the better you’ll be able to contact it and give the message it wants.
- Work on the company’s credibility. Customers need to know who you are, what you stand for, and that they can trust your brand, not just your products or services.
- Focus on high-value offerings. Describe how your company’s one-of-a-kind, high-value offerings can assist clients in leading more fulfilling lives. Then, properly deliver on that promise so that your client connection can continue to grow without interruption, resulting in new customers eager to join your base.
- Highlight the advantages. You must demonstrate that your organization provides customers with benefits that competitors cannot match.
- Create better messaging. It should be targeted, personalized for consumers, relevant to those who might become customers, and actionable for both the target audience and the organization.
Gaining new clients is one approach to increasing market share. A business can grow its customer base in a number of ways. Here are a few to think about:
- Better marketing. Improve marketing messaging to both potential new customers and current customers.
- Get in touch with old customers. Re-engage clients who haven’t heard from you in a while with pleasant welcomes, special offers, and discounts.
- Referral programs. Introduce an attractive referral program to existing customers as an incentive to provide the contact information of their friends and families. If a program isn’t possible, ask your most satisfied clients for references.
- Work with brand ambassadors. Request that your most engaged customers work as brand ambassadors, aggressively spreading the word about your firm through their preferred media.
- Review your company’s website. You must make certain that your website has the style, feel, and message you desire. A website evaluation is an excellent time to discuss your company’s mission and goals, as well as the goals you’ve set to help consumers and others.
- Keep track of your company’s ratings and reviews. Keep an eye on sites and platforms that promote customer reviews and ratings. Genuinely respond to both concerns and compliments. Make every attempt to assist those whose positions require immediate attention. Consider including a link to the company’s website in positive evaluations.
Conclusion
A corporation has a lot of options for not only maintaining but also gaining market share, as it can be critical to a company’s long-term success.
Every organization should recognize the benefit of a large market share and be willing to put in the time and effort required to achieve it. Also, it’s important that the companies use market concentration data and research to identify more opportunities and ways to grow their business.
