Market Share: The Wrong Metric

There are better ways to improve financial performance.

Increasing market share doesn’t pay off for most firms, say Alexander Edeling of the University of Cologne in Germany and Alexander Himme of Kühne Logistics University in Hamburg, Germany. Their meta-analysis of 89 empirical studies published over 45 years finds that a 1 percent increase in market share increases average financial performance by only 0.13 percent.

Other research by Edeling shows that firms enjoy bigger payoffs when they invest in building customer relationships and brand awareness, actions that deliver six times and nearly three times the impact of gains in market share, respectively.

Maintaining high market share often comes with costs: It sometimes requires companies to cut prices or advertise aggressively, both tactics that can hurt profits. In today’s digital marketplace, says Edeling, companies might have more success if they manufacture in low-cost areas and sell to a global marketplace.

Instead of chasing market share, Edeling and Himme suggest that firms innovate their products, enhance customer service, and build brands with high-potential customer bases.

“When Does Market Share Matter? New Empirical Generalizations from a Meta-Analysis of the Market Share–Performance Relationship” appeared in the May 2018 issue of the Journal of Marketing.