Expanding Market Share

Market leaders also can grow by increasing their market shares further. In many markets, small market share increases mean very large sales increases. For example, in-the U.S. digital camera market, a 1 percent increase in market share is worth $90 million; in carbonated soft drinks, $720 million!15

Studies have shown that, on average, profitability rises with increasing market share. Because of these findings, many companies have sought expanded market shares to improve profitability. GE, for example, declared that it wants to be at least number one or two in each of its markets or else get out. GE shed its computer, air-conditioning, small appliances, and television businesses because it could not achieve top-dog position in these industries.

However, some studies have found that many industries contain one or a few highly profitable large firms, several profitable and more focused firms, and a large number of medium-sized firms with poorer profit performance. It appears that profitability increases as a business gains share relative to competitors in its served market. For example, Lexus holds only a small share of the total car market, but it earns a high profit because it is the leading brand in the luxury-performance car segment. And it has achieved this high share in its served market because it does other things right, such as producing high-quality products, creating good service experiences, and building close customer relationships.

Protecting market share: In the face of market leader P&G's relentless assault in the laundry war, Unilever recently threw in the towel by putting its U.S. detergents business up for sale.

Companies must not think, however, that gaining increased market share will automatically improve profitability. Much depends on their strategy for gaining increased share. There are many high-share companies with low profitability and many low-share companies with high profitability. The cost of buying higher market share may far exceed the returns. Higher shares tend to produce higher profits only when unit costs fall with increased market share, or when the company offers a superior-quality product and charges a premium price that more than covers the cost of offering higher quality.

Digital Cameras For Beginners

Digital Cameras For Beginners

Although we usually tend to think of the digital camera as the best thing since sliced bread, there are both pros and cons with its use. Nothing is available on the market that does not have both a good and a bad side, but the key is to weigh the good against the bad in order to come up with the best of both worlds.

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