Big Share Of Market Is Desired
While looking over your shoulder will tend to slow you down, it is important to know how you are faring against the other competitors in the race.
Q. I’ve been told that my company’s market share is the most important indicator of its present and future success. Just what percentage of the market do I have to control in order to keep ahead of the pack?
A. A goal of 100% is nice but hardly ever achievable and never practical. The trust busters in Washington tend to frown on monopolies or any market posture which seems to threaten healthy competition. If you don’t believe it, ask the folks at AT&T or Staples.
So, obviously, something short of complete control of the market is a worthy goal. How much less can be debated, but studies have shown that profitability is directly related to market share.
The bigger piece of the market action you control, the more you can influence pricing, promotion, customer awareness, the costs of what you buy and the channels of distribution that are important in your markets.
Share of market also constitutes a meaningful, visible goal for management and sales personnel. Many firms gear their compensation programs to performance with respect to market share.
A healthy market share, therefore, is something to be desired.
Market share can be measured in several ways. The difficult part is finding out what the total market is. This can be done by determining total dollar sales (the most common indicator) or things like units sold, customers served, or transactions processed in the entire market served by you and your direct competitors. The gauge you choose to measure it depends on the nature of your industry and the dimensions that are most relevant to your operation and your bottom line.
Once you know the aggregate pot that everyone is fighting over, you can simply relate your firm’s accomplishment to the total. The resulting percentage is your share.
For many companies, market share is the holy grail. While I buy into its importance as a performance indicator - one among many - I’m less sanguine about its ability to accurately reflect a firm’s posture and prospects with respect to the emerging market.
Market share statistics constitute a snapshot, a picture of the firm’s position at a given point in time. While the smart decisions and momentum that got the firm to that spot might - I emphasize might - keep it moving on a trajectory that allows it to remain in the forefront of the market as presently defined, it says nothing about how the firm will fare as the market metamorphoses.
While a healthy piece of the market that existed yesterday can provide a sound launching pad for future activity, it by no means will guarantee continued good performance in the new markets that are emerging. Markets are constantly shifting and it is incumbent upon a firm to secure a respectable piece of that shift as well.
As a consequence, I tend to give as much weight - sometimes more - to a firm’s ability to attain “share of market shift” as I do to its achievements with respect to static market share.
Things are happening so quickly in today’s dynamic global economy, that the market that existed yesterday can be abandoned in a blink of an eye by an innovative firm that makes significant changes in the way that the old market’s value was produced and delivered to customers. As a consequence, a firm that did well in the old market may not even be a player in the new market.
Ironically, that firm’s share of the old market may actually increase as a more innovative competitor pulls out and creates a new market within which it will seek a dominant position. So while the slower contender’s share of the old market might rise from 40 to 60% overnight, the relevance and potential of the market overall have been diminished by the emergence of the new playing field. And the new market that emerges might be much more important, profitable and promising than the old turf.
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The following fields overflowed: CREDIT = Paul Willax The Spokesman-Review