The market share myth
Wharton marketing professor, J. Scott Armstrong, isn't a big believer in the market share driven approaches to business. He's been conducting research for years to prove that "competitor-oriented objectives, such as setting market-share targets, are counterproductive."
In one such study, Armstrong and Fred Collopy, of Case Western Reserve University, "asked 170 MBA students over a period of years whether the "primary purpose of the firm is (a) to do better than its competitors, or (b) to do the best it can." One-third of the students chose (a), suggesting that a large number of the students believed that beating the competition is more important than other goals, including profitability."
In their 1996 study, Armstrong and Collopy also analyzed data amassed by scholars to measure the level of competitor orientation of 20 major corporations, as stated by the companies themselves, and how the level of competitor orientation was related to the firms' after-tax return on investment (ROI) for five nine-year periods beginning in 1938 and ending in 1982. "Competitive-oriented objectives were negatively correlated with ROI for these data," Armstrong and Collopy concluded. In other words, the more managers tried to be the biggest in their market, the more they harmed their own profitability.
There's some hope yet, as Armstrong believes it's never too late for CEOs to change.
"We're not saying companies shouldn't pay attention to their competitors; they might be doing reasonable things that you may also want to do," Armstrong says. "What we're saying is that the objective should not be to try to beat your competitor. The objective should be profitability. In view of all the damage that occurs by focusing on market share, companies would be better off not measuring it."
Hrush
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plz send us a group ticket price from del to blr on 29-01-08.
waiting ur reply,
regards,
somveer
Admn Officer
UPES
Gurgaon
Haryana
Most of the research on the subject of market share shows a definite link between Market Share and Profitability/ROI. In fact, I remember one excellent research report that I read when I was in college. It showed, backed by statistical evidence, that each percentage point increase in market share resulted x% increase in ROI.
Even real life examples around us show the significance of market share for business success.
GE - Jack Welch's famous strategy of 'GE should be no. 1 or 2' in each of the business in operates. Otherwise, Jack said GE should exit the business. (The only exception was Financial Services business, where the market size was too huge and there is room for large number of players...even here GE is market leader in many segements that it operates like aircraft leasing etc.,)
ICICI Bank - Every segment they went into - credit cards, home loans, personal loans, auto loans, deposits - with the single goal of market share. They are market leaders in each of the categories. This is not by accident. This was the strategy of KV Kamath and their retail head. According to these guys, market share eventually means: talent willing to work for the organization, flexibility and freedom to take more risks, employees go with a spring to the market (better ability to close deals), vendors are interested in you, better negotiating power, and so on. The subtle, but important advantages, of market share are just too great.
The list of such organizations which have focussed on market share and succeeded is endless - Reliance, Airtel, Hindustan Lever (in every segment of theirs), P&G (globally)...
Perhaps, from Armstrong study, we need to check out what it says of those organizations which did not focus on market share (focusing on competition and not on customer is a completely different story)
I strongly feel Cleartrip should take the market share approach for succeeding in business...