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March 02, 2007

The Myth of Market Share

The recent merger activity between XM/Sirius and Whole Foods/Wild Oats has me thinking about market share business goals. An influential book I read on this subject is THE MYTH OF MARKET SHARE: Why Market Share is the Fool’s Gold of Business (Richard Miniter, 2002).

Below is a cut/paste remix summary of the book. If you like this remix summary, go buy the book.

”Market share is treated like an article of religious faith, unquestioned and unquestionable. Virtually every study on market share simply assumes a direct connection between market-share growth and profitability.” (pg. 25)

“But the pursuit of market share, once market share is made the centerpiece of corporate strategy, can lead to other questionable moves. Executives and managers often find themselves ‘forced’ to make a series of risky decisions—deep discounts, cheap financing, and unprofitable or thinly profitable sales—just to defend or boost market share. These actions reduce profit margins, erode brand identity, and harm the long-term health of companies.” (31-32)

“The alternate philosophy may sound basic and uncomplicated, but it works. It’s called profit leadership. Profit leaders think about customers, not competitors, and thing about next quarter’s opportunities, not justifying last quarter’s market share.” (12)

“Let me be clear. I am not saying that companies should ignore market share, although it would probably not hurt them if they did. Market share should simply be seen as a by-product, a secondary effect of pursuing a company’s core mission. Market share is not an advantage, by itself. It is the result of a sustainable competitive advantage, not the cause.” (14, 15)


source | THE MYTH OF MARKET SHARE

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Comments

Healty piece!

I love it. This is the holy grail. It's gradually getting found. Bravo.

Yeah ... I really love the line, "Profit leaders think about customers, not competitors." That's strong stuff from Richard Miniter.

Hi John,

Do you believe it's possible to think about customers without thinking about competitors?

Yes Mike, I do think it is possible to think about customers without being all consumed by what the competition is doing.

There is a difference between being aware of competitors and being consumed by the actions of competitors.

Whole Foods thinks more about customers than they do competitors. Sure, Whole Foods knows what Kroger, Wal-Mart, Trader Joe's, Wegman's are all doing. But, they rarely mimic what those grocers are doing.

In many ways, the airline industry thinks more about the competition than the customers. If United drops fares then the other airlines copy and follow suit Same goes for the car industry. If Chrysler offers up Employee Discount for Everyone, then other car companies copy and do the same thing.

Apple is aware of what its competitors are doing but they are more interested in making products that customers want and not in mimicking what Dell or HP is doing.

So yeah ... I jibe with Richard Miniter's thinking.

Like a scenario where a company becomes "consumed" with a competitor, fixates on offering customers better product, service, value etc., and in doing so wins more market share?

Mike what you just described sounds like a company is fixated on the customer and not the competitor.

No, what I just described John is a company fixated on eliminating his competition.

Mike ... have you read Miniter's book? Since the reason your business exists is to help businesses gain market share, I'm sure you'd get fired up over everything he writes about. It would make for great fodder on your blog.

No. Have not read it yet. Your blog pointed it out to me. One of the reasons I always read Brand Autopsy! I'm familiar with his terrorism writing. Didn't know he dabbled in business.

Market share makes sense if your an established (read leader) brand. However, it ultimately converts your business model into one based on volume instead of margin.

There was a fantastic article about Nintendo in a recent issue of the New Yorker, in which the author discussed the (financial) merits of being number 3! Click to read.

Taking market share and being volume-driven sounds like what AirTran is proposing to do to with their attempted hostile takeover of Midwest.

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