The Market Share Mystique
This chapter contains a discussion of the theoretical background of the market share strategy. What is market share? Why is it important? How is it measured? What are key considerations in using the market share strategy?
Generally, a firm that increases its market share in an industry can earn more profits than a firm that has a low market share ( Buzzell and Wiersema 1981). This observation applies to both domestic and global markets. A metaanalysis of 276 market share-profitability findings from 48 studies shows that on average, market share greatly affects business profitability ( Szymanski, Bhardwaj, and Varadarajan 1993). Therefore, it is important for firms to have a better understanding of the subject of market share.
The positive relationship between market share and profits is also evident in the PIMS (Profit Impact of Marketing Strategies) study of the Marketing Science Institute. Furthermore, the tremendous success of Japanese firms using market share as their primary strategy proves the point. Japanese firms have employed the market share strategy quite successfully. Initially they adopt a low-price, high-quality product-marketing strategy. After getting a certain portion of the market share in an industry, these firms often switch to a high-price, high-quality strategy and thus enhance their profits.
Typically, market share notions both in theory and practice are viewed in connection with a domestic market. In today's globalized markets, however, such domestic market-oriented thinking is becoming obsolete for strategy development and application. In the past, when the U.S. market was the largest, overseas markets were considered unimportant.