I have grown very tired of hearing companies declare, one after another, that their primary goal is “…to increase Market Share”. While it is certainly a wonderful thing for a company to be able to proclaim loudly that “…we are number one or number two in every market in which we compete…” – market share alone seems to be , in most cases, a meaningless goal.
Market Share is defined as “the percentage of the market for a product or service that a company supplies”. You may frequently hear statements touting a company’s market share as an indicator of success to which all businesses should aspire – for example : “Canadian restaurants battling for fruit smoothie market share”.
The natural presumption is that “…the greater the market share, the higher the level of business success.” If this is true, then every business should have as its goal : the highest market share in our business segment. This is a no-brainer – right ? Well….think again…
There are certainly instances in which leading market share DOES equal true market dominance and business success. For example : where the per-unit cost structure is such that dominant market share equals the highest company profit levels in a product segment; OR where leading software platform market share, even if initially achieved at a loss to the company, creates future application development dominance and resulting licensing or support revenue.
At the same time, it is certainly possible to have leading or dominant market share, and still have a failing business. What good is it to own dominant share in widgets if my company loses 10 cents per unit of widgets due to ineffective supply chain processes while my primary competitor owns only 15% of the market but boasts a 40% per unit margin ? What benefit is there in being a market share leader in a dying market segment ? What benefit would there have been in 1976 to holding the greatest market share in Betamax format video cassette players, while the VHS format continued to gain increasing market acceptance ?
I absolutely LOVE this excerpt from a 1974 speech that Silicon-Valley pioneer and Hewlett-Packard Company co-founder David Packard made to an internal group of managers in the company’s Electronic Products Group (EPG). Packard makes it clear that, in his view, pursuit of dominant market share is should not be a business objective:
“Well gentlemen. I think it’s a good thing for us to take a few minutes here this year and go back and remind ourselves of some of the things that we seem to have forgotten. I suppose each one of you was just as shocked as Bill and I were when we got the figures together and found out the profits were such that they did not support as high a bonus this year as they did last year, and you know Bill got a little mad about it and I guess he got a little carried away over the PA, and he didn’t blame the right people, but in any case, I think it happened just because we were kind of soft about it, and there are a number of things that troubled us, but I guess one of the most serious was that we had known that there had been some problems during the year. We didn’t realize that the problems were as bad as they were, and the fact that we didn’t know until the last minute was a very, very troublesome thing. So I thought it might be helpful to take a few minutes and turn around and see if we can really define what some of our management objectives in this company should be and what I’m going to tell you today is not anything that you don’t already know or shouldn’t already know but for some reason we’ve gotten a little bit off the track in the last couple of years.
For some reason we’ve got this talking about one of our objectives in to increase the share of the market, and I want to start right out by telling you that that is not a legitimate management objective of this company, that it leads you to the wrong kind of decisions, and that hereafter if I hear anybody talking about how big their share of the market is or what they’re trying to do to increase their share, I’m going to personally see that a black mark gets put in their personnel folder, and I want you to understand that because that’s extremely important. Anybody can increase the share of the market by giving away their products, and that’s exactly what we did in some cases in this company the last couple of years. This is not a subject that you people here were responsible for, but we have a rather significant share of the market in CATV amplifiers, and we’d be just a hell of a lot better off if our share was zero. So that’s one of the first messages that I want to get over , and I just want you to understand that that’s one of the reasons in my view that we’ve made some very bad mistakes in management and that’s the first lesson of this afternoon.”
Do you agree with me ? Do you agree with David Packard ? Is “increased market share” in and of itself a valid business objective ?