Market Share Myth

Company managers love to chase market share.  They like it because it’s a competitive head-to-head score, like a score to a baseball game. If you “take” market share from your competitors, then you’re beating them up and that’s good. If they take it from you, that’s bad.

I don’t think we should worry much about market share.  I have several reasons.

First, it isn’t necessarily a good read on the measure of business health.

Consider a simple ad absurdum: Would you be better off by doubling market share by cutting price in half?

No. You may be worse off. What if you cut your salary in half and got two jobs?

Sure with more clients, you’re less dependent on any one client. But, it will cost twice as much to serve those clients. So, you’ve doubled your costs while keeping revenue flat. And, you may have attracted a less loyal client that is more likely to leave you.

Several years ago, a company I worked with exited a line of business that had given it some market share and consistent financial losses for six years. It showed no signs of producing profits. There’s another name for such a line of business: unnecessary cost.

The managers kicked themselves on the earnings conference call for losing that market share. Rather than kicking myself, I would’ve celebrated giving up that line because it would mean getting rid of an unnecessary cost and more money for shareholders.

Getting rid of unprofitable market share, as in the example above, can be good. Acquiring unprofitable market share can be bad.

Earnings is a better measure of health.

Second, focusing on market share keeps managers too focused on their existing product lines. The best makers of buggy whips probably acquired significant share of the buggy whip market as the automobile was replacing the buggy.

Third, the “market” is to easy to get wrong. Is McDonald’s market share its share of hamburgers sold, its share of fast food hamburger restaurant sales, its share of fast food restaurant sales, its share of all restaurant sales or its share of all food and beverages sold?

Why pick one definition over the other? Should McDonald’s be bothered that you chose to buy a Coke at the vending machine in your office building instead of one its restaurants? Should they get into the office vending business in order to “capture” that market share?

I don’t think so.

Fourth, the market share paradigm turns the business world into a caricature of a “battle for control of the market”.  Company managers even try to act like that’s how it works as they bludgeon their troops to deliver results.

I think that’s an inaccurate and damaging representation of the business world.

Companies that gain profitable market share are those that provide products that clients value enough to buy at a price that more than covers the company’s costs.

Rather than a heartless battle for market share, the business world is really a trial-and-error lab that looks for ways to delight customers. Rather than Glengarry Glen Ross, it’s more like Starbucks.

Rather than gaining market share, businesses should be focused on pleasing customers and growing profits.

Growing profits is less like war and more like convincing a girl to go on a date. The secret to doing that is to give a girl what she wants. Figuring out what that is a trial-and-error process and can change at any time.