Market Growth: Definition and Calculation
Definition
Market growth
Market growth refers to the percentage increase in the total size of a market over a specific period.
Market growth can be measured in terms of sales revenue, units sold, or number of customers.
Formula for Market Growth
The formula for calculating market growth is:
$$
\text { Market Growth }(\%)=\left(\frac{\text { New Market Size }- \text { Old Market Size }}{\text { Old Market Size }}\right) \times 100
$$
- Market growth is not uniform across all industries.
- Some markets, like technology, may experience rapid growth, while others, like traditional manufacturing, may grow slowly or even decline.
Why Market Growth Matters
- Strategic Planning: Helps businesses decide whether to expand, invest, or diversify.
- Resource Allocation: Guides where to focus marketing, production, and R&D efforts.
- Competitive Analysis: Identifies opportunities and threats within the industry.
Uses of Market Growth in Business Strategy
1. Identifying Opportunities
- High-Growth Markets: Attract new entrants and encourage existing firms to expand.
- Low-Growth or Declining Markets: Signal the need for innovation or diversification.
A company in a high-growth market might invest in expanding production capacity, while a business in a declining market might focus on cost-cutting or diversification.
