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How much market share do you want for your business? 30%? 50%? 80%? All of it?
Gaining market share for your business has advantages. As you build share, you are more known and your reputation increases. People chose to do business with you because you are so well known and “obviously” must be the best. Selecting to do business with the market leader gives customers a sense of security of making the right choice – the safe choice.
Having a large market share also gives you the advantage and makes life more difficult for the competition. A large market share probably means that you have more revenue and, therefore (presumedly), greater resources that your weaker competitors do not have. Given enough advantage in market share, you set the rules and your competitors are squeezed into increasingly weak positions.
And, the argument goes, higher business volume gives scales of economy — lower costs which then lead to higher profit margins.
But increasing your market share is not always easy. And, in fact, it might not be desirable.
Gaining market share is easy when your current share is relatively small. Increasing that share from 5% to 10% to 15% is relatively easy. You “merely” need to target the right customers (or segments), communicate a well focused value proposition, and service them well. So far so good.
But at some point, gaining more market share starts to become more difficult. Your competition fights back. (Life was easy when you were small and they did not notice you.) And, as you seek to win increased numbers of customers, it becomes more difficult to satisfy their differing needs. You begin to need to be “all things to all people” — not easy to do. (I know that I can't.)
And the cost of each increase in market share goes up. Yes the higher business volume does give you better economy of share and, hopefully, better margin. But each additional percent increase in share becomes more difficult – both in effort to win and potentially the need to lower your price in response to competitive counter attacks.
You can reach a point of diminishing returns. Although your profit may increase with increased market share, you reach a point where the cost to gain additional share approaches (or exceeds) the profit that you gain. The cost and effort required is not justified by the incremental increase of profit that you might obtain. You can actually get to the point where your overall profit goes down with increased market share.
So, how much market share do you want? What is the 'optimum' amount? That depends on your objectives and strategy. Only you can decide that. The 'optimum' market share is where you get the maximum profit return for each additional amount of money spent. It is probably where the effort and incremental cost is beginning to approach the incremental gain in profit that you gain. You certainly do not want to go to the point where you get no increased profit for an increase in share — or where profit decreases.
In the end, it is you who is running the business and you who decides.
And, remember, having competition is good. You want to have competition. More on that topic in another posting.
Mark Louis Uhrich
Maisons-Laffitte, France, 23 February 2011
©Copyright Mark Uhrich