Expanding Market Share

Market leaders can improve their profitability by increasing their market share. In miliy markets. one share point is worth tens of millions of dollars. A one-share, point gain in coffee is worth S48 million; and in soft drinks. S120 million! No wonder normal competition has turned intu marketing warfare.

Galniug Increased share in the served market, however, docs not automatically produce higher profits—especially for IftbtfHntfftSlvc service companies that may not experience many economies of scale. Much depends on the company's strategy.

Bccatise the cost of buying higher market share may far exceed its revenue value, a com -pany should consider lour factors before pursuing increased market share:

A The possibility of provoking antitrust act ton, such as rccetiily occurred with investigations of Microsoft and Intel, Jealous competitors are likely to cry "monopoly" if a dominant firrn makes farther inroads. This rise in risk would diminish the attractiveness of pushing market share gains too far.

■ Economic cost. Figure 11.7 shows that profitability might fall with further market share gEiins after some level. In the illustration, ihe firm's optimal Marfan share is 50 percent. The cost of gaining further market share might exceed the value. The "holdout" customers may dislike the company, be loyal ifi competitive suppliers, have unique needs, or prefer dealing with smaller suppliers, The cost of legal work, public relations, and lobbying rises with market share. Pushing for higher market share is less justified when there are few scaly or experience economics, unattractive market segments exist, buyers want multiple sources of supply, and esit barriers are high, .Some market leaders have even increased profitability by selectively decreasing market share in weaker areas.15

a Pursuing the wrong marketing-mix strategy. Miller Brewing spent $1.5 billion on measured advertising during the 1990s hut srill managed to lose market share, its ad campaigns were highly distinctive but, unfortunately, also largely irrelevant to its targeted customer basft^Vhen ii was acquired by SAB in ¿002. new management overhauled market ins operations.3' Companies successfully gaining share typically outperform competitors in three areas1; new-pro duct activity, relative produce quality, and marketing expenditures* ^ Companies that cut prices more deeply than competitors typically do not achieve significant gains, as enough rivals meet the price cuts and others offer other values so that buyers do not switch. Competitive rivalry and price cutting have been shown to he most intense in industries with high fixed costs, high inventory costs, and stagnant primary demand, such as steel, auto, paper, and chemicals.-11,1

o The el feci of increased market share on actual and perceived quality.'1,0 Too many customers can put a strain on the firm's resources, hurling product value and service delivery-America Online experienced growing pains when its ct is tourer base expanded, resulting in system outages and access problems. Consumers may also infer that "bigger is tioi better" and assume that growth will lead to a deterioration of quality. If "exclusivity" is a key brand benefit, existing customers may resent additional new customers.

Other Competitive Strategies firms that occupy second, third, and lower ranks in an industry are often called runner-up, or trailing firms, Some, such as Colgate, lord, Avis, and iVpsiCn. are quite large in their own rijiht. These firms can adopt one of two postures. They can attack the leader and other competitors in an aggressive bid for further market share (market challengers), or they can play ball and nut ''rock the boat" (market followers!,

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