Market Share:Market share is a popular marketing metric.
Market share is a popular marketing metric. One reason for why manager value market share is that research from the 1970s suggested a link between market share and ROI; however, the linkage may be less clear: the studies have found it is often correlational rather than causal. The survey found that there were two ways managers used market share: as an ultimate objective or as an intermediate measure of success. Increasing market share is not a meaningful ultimate objective for maximizing shareholder value and stakeholder management: If the aim is to maximize the returns to shareholders, increased market share offers no benefits unless it eventually generates profits. In some markets, bigger can be better; however, economies of scale do not automatically apply all markets.
Unmuddling Market Share:
The authors suggest a simple set of rules for the appropriate use of the market share metric:
– Managers should not consider market share as the ultimate objective or as a proxy for absolute size.
– Managers should evaluate it from the competitors’ and consumers’ point of view. If an increase in market share is not going to get positive feedback from competitors and consumers, then an increase in market share will not lead to a productive result.
– Managers should analyze whether market share drives profitability in your industry. Companies with superior products tend to have high market share and high profitability because product superiority causes both.
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This means that the two metrics are correlated, BUT it does not necessarily mean that increasing market share will increase profits.