Market Share Is Not Destiny

Abstract

Inquiries into the relationship between market share and profitability have provided valuable generalizations and insights about business strategy. A case has been made for both high and low market share strategies in the pursuit of superior profitability. However, what these studies mean for business strategists in medium share companies looking to improve sub‐par profitability is not so clear. What strategy should they implement? Should they, for instance, chase additional share or selectively concede share and focus their efforts on profitable segments and niches? The answers formulated to this question will have long‐term strategic consequences. A number of studies have considered the statistical relationship between market share and profitability. The issue has also been looked at from the perspective of high share and low share firms. This article deals with market share/profitability in terms of strategic options for top management in medium share companies.

The market share–profitability relationships in the securities industry

“…Data have been obtained from PIMS (Buzzell & Gale, 1987;Buzzell et al, 1975;Laverty, 2001;Venkataraman & Prescott, 1990), FTC's LB database (Schmalensee, 1985), bank financial reports (e.g., Frame & Kamerschen, 1997;Smirlock, 1985), and Ward's Business Directory (e.g., Fraering & Minor, 1994;Shanklin, 1988). The evidences regarding the extent to which market share influence the profitability of firms [such as return on assets (ROA), ROI and return on equity (ROE)] remain, however, varied.…”

On the Competitive Land Market: Evidence from Hong Kong

“…Fine (1975) applied the winner's curse to the building industry: the successful tenderer is the one who made the largest underestimate of the true cost. A negative view on the relationship has also been supported in numerous empirical studies such as Jacobson (1988), Shanklin (1988) and Fraering and Minor (1994). However, Jacobson (1988) finds that there is no relationship between ROA and market share and concludes that previous findings of a positive relationship are due to a lack of control for extraneous variables.…”

Is enlarging the market share the best strategy for maximizing profits

“…Firms should depend on their resource conditions when taking the best market share strategy instead of enlarging their market share without considering other factors (Bourantas and Mandes, 1987). Shanklin (1988) considers market share to be related closely to profit. For this reason, firms need to deliberate on their resource and industry features when creating their market share strategies.…”

“…On the contrary, some researchers have different opinions. They point out the insignificant relationship (Newton, 1983;Herhert, 1984;Shanklin, 1988) or spurious relationship (Bourantas and Mandes, 1987) between market share and profit. Jacobson (1988) and Schwalbach (1991) consider that there is no relationship between market share and profit.…”

“…Woo (1981) and Woo andCooper (1981, 1982) indicate that firms with a low market share have higher profits. Newton (1983) and Hergert (1984) and Shanklin (1988) find that there is no significant relationship between market share and profit. Jacobson (1988) and Schwalbach (1991) note that market share does not have a relationship with profit.…”