Increase Market Share of a Product
Every organisation or company that wants to be successful must continuously strive to increase its market share. But the fact is that most companies fall short by a great margin of their annual planning and projection. When the chips are finally counted at the end of the financial year and success is evaluated, the spreadsheet expectations often don’t meet reality. Even if expectations are met, the proper measure of success isn’t just the growth percentage of your market share, but the measure compared to your peers in the industry.
When to expand your business?
Never make the mistake of trying to grow too soon. Wait until the time your firm is backed by successful trading to provide the evidence that your business model is working out. This, along with a basic market research, will tell you whether there’s enough demand for justifying the expansion and give you the time to put in place a system to meet with the increase in scale.
Working on a development strategy can help you gauge the measure of your progress. It will set your costs, methods, targets and a pragmatic schedule. You have to realign your business plan according to the strategy.
The real winner, however, is the one who achieves its growth at the cost of other competitors in the market. When the individual increase in the market pie lacks the sector penetration growth, you can’t afford to be on the list of laggards.
But how do you win at your competitor’s expense? Here are some basic rules to increase your market share and also steal customers from you rivals.
Market Share building
Majority of the companies that analyze their position, conclude that they’re operating below the optimal market share. They’re not fully optimizing their production, or worse still, have not built a unit of the most economical size. That is, they aren’t quite big enough for achieving distributional and/or promotional economies. They can’t attract the strongest talent and see a bigger market share to promise greater profits, sans commensuration of the greater risk.
Market share increasing strategies should ideally meet several considerations i.e. whether (1) the primary market is stable, declining, or growing; (2) the product is highly differentiable or homogenous; (3) resources of the company are low or high compared to that of its competitors; and (4) there are several or only a few competitors and their effectiveness.
This is one of the most effective strategies to increase market share for product. Product limitation, on the other hand, could be appropriate for growth in an emerging market. It, however, may not change the existing market share. Companies like Zenith, Xerox, Polaroid, Control Data, and others made their mark because they zeroed in on a better product.
Innovation is often a risky and expensive strategy which requires a careful analysis of the market demands, astute timing, and large investment.
This strategy can also be used to increase market share in business. Several leading companies target only the mass market and neglect the fringe ones. This is a major mistake, illustrated by some leading American car makers, who for years catered only big automobiles, claiming that the small car segment was too small to yield profits. The vacuum was first filled by Volkswagen, and later by other Japanese and European companies that pocketed huge profits.
It is a strategy that can help a company to cover the market more exhaustively. Timex sold its watches from unconventional outlets like apparel and drugstores. These outlets refused to sell other low-priced watches, leaving Timex an open ground to score. Cosmetics major, Avon, achieved spectacular growth by reviving the neglected and dated channel of doorstep sell, instead of battling for space in traditional retail chains.
This the final strategy for increasing your market share. Consider “We’re no. 2, we try harder” by Avis, or the “Marlboro Man” by Philip Morris. A distinctive and clever branding and promotion—once established—could be hard to replicate. But too many organizations tend to emphasize more on innovative promotion when in reality they should hunt for the real segment, product, or distribution innovation. Flashy promotion could have a hollow ring if unsupported by improvements to customer value.
Market Share maintenance
Many companies, while evaluating their market position, may find that they are already operating at an optimal level. The risk or cost to increase the share could negate the gains. A decline in the current market share, on the other hand, may dent the profits. These companies focus more to maintain their market share.
But these companies often find that maintaining their market share is as challenging as increasing it. Underdog competitors constantly bite into a stable company’s share by introducing new products, sniffing out new segments, trying new distribution forms and launching new promotions.
Price cutting is one of the commonest and most annoying forms of attack. The higher market share company is often at a dilemma on whether to offer price cuts for maintaining its share or cede a little share and uphold its margins. If the latter company upholds it prices, it may lose its share. Losses beyond expectations may lead to double rebuilding costs more than the profits from the holding process.
This is the best defense to maintain market share; the same strategy which works well for an underdog. A leading company must never feel contended with the way things are. It must anticipate obsolescence by coming up with new products, distribution channels, customer service, cost minimization processes etc.
This is where the market leader plugs in the holes to prevent rivals from exploiting them. It’s also the essence of multi branding strategy perfected by Procter & Gamble (P&G). The company introduces a number of competing brands to tie up the scarce distribution space and barricade some of the competition.
This is of course the least attractive of the lot. Here, the market major defends its position by indulging in a price cutting and promotional war to discipline newbie competitors. It may resort to harassment i.e. pressing suppliers and dealers to ignore newcomers to avoid losing its goodwill. Confrontation works sometimes, but it involves risk and contributes less to social welfare than an innovative process.
Market Share reduction
Many companies, analyzing the associated risk and profitability with their present market share, often conclude that they have exhausted themselves in the markets. Their large share puts them on the “hot seat” or includes mostly marginal customers. Such factors may lead the company to consider reducing its market presence.
Market share reduction calls for both selective and general demarketing. It’s an attempt to permanently or temporarily reduce the level of customer demand. It could be directed towards the entire market or a part of it and seeks to reverse the normal flow of marketing moves i.e. reducing advertisement and promotion, raising prices, cutting services etc. It can also involve some extreme measures like reducing convenience features and product quality. In a prolonged period of shortage, these measures could be particularly necessary.
Many high market share companies have used demarketing for reducing their presence to a less risky level. P&G, for instance, allowed its shampoo market share to slip to just above 20% from around 50% over the past few years, surprising many of its competitors. During this period, P&G delayed reformulating its older brands like Head & Shoulders and Prell, tried introducing only one new brand which was twice withdrawn from the test markets, and never attempted to “buy” back the share with heavy promotion and ambush marketing. It’s likely that P&G’s passive response to the decline is engineered and could be motivated by a desire for avoiding antitrust difficulties like its encounter with Clorox.
Kellogg is one company which has used selective demarketing on its delay to enter the natural cereal market. The company decided to allow its rivals dominate the segment to improve its own chances to emerge from the current antitrust difficulties, minus too many scars.
In the automobile industry, experts have long remarked how Ford, Chrysler, and General Motors, treat American Motors as a shield for antitrust attacks. The majors have given AMC only minor competition regarding lucrative government contracts (military, postal jeeps etc).
Companies concluding that their market share is dangerous, may adopt strategies to reduce their risks instead of strategies to reduce their share. Optimal market share is a function of both risk and profitability. Any success to reduce the risk surrounding a high share is similar to optimizing the share.
Companies can consider the following risk reduction methods to lessen the insecurity over their market share.
It’s becoming increasingly common for many major companies to spend large amounts on public relations and advertising to improve their brand worth. These companies hope that these efforts will undercut the public support for governments, authorities, and consumer group actions that may damage their interests.
Yet others use advertising and public relations for publicizing their position on some controversial issues. Leading oil companies spent massively on newspaper advertisements, defending their high profits during the recent petroleum shortage, arguing that the money was required to feed the future energy growth or meet the depressed profits of the past. These advertisements probably didn’t convince a single skeptic and made the public angrier on the uselessness of the full-page inserts. Many critics even labeled the move as “ecopornography” and complained that these advertisements dented government tax revenues.
A company with a high market share may try to reduce the risks involved with its position by cultivating a better relation with its rivals. There are numerous ways to achieve this. Companies may help to find raw material supplies, or even outright sell the material. They may spend on advertising which protects the entire industry and not just its own business. They may stop reacting strongly to their competitors’ strategy change, besides extending price umbrellas. They can also hold back production.
Pacified smaller rivals exist in almost all industries. Ford and General Motors have realized that it’s in their best interest to keep American Motors and Chrysler in good humor. Smaller cereal companies, similarly, are on friendly terms with Kellogg.
Competitive pacification allows smaller and weak competitors to prosper in the market. They do a public service by granting consumers a wider choice of products to choose from.
Successfully entering markets that are different from the key market, leads to a steady stream of profits that continue, even if there’s something drastic like divestiture and antitrust has occurred.
Besides, fear of competition in an established market could lead a company to diversify. Gillette is a recent example of a high market share company that has diversified extensively. It has expanded from shaving products to pens, deodorants, hairdryers, shampoos, and various other products.
Diversification of strategies by leading market share companies usually forges a positive social benefit. Their entry into new industries generates healthy competition across the industry.
Responding to social needs is one of the most constructive ways of a high market share company to reduce its risks. Many companies have earned the trust of their customers because of their continuous efforts to cater to societal needs. Companies like Whirlpool, Zenith, and Sears are the ones that immediately come in mind. Trust in not an outcome of a clever and sustained public relations campaign. It’s rather the satisfaction that the public and customers receive while dealing with the company.
Increasing market share is an aggressive strategy that companies deploy for bolstering their presence in the industry, while weakening competition. Securing more customers leads to greater revenues for a company while decreasing the profits of others. Increasing market share is challenging but the company has to live up to it.
Small companies have limited resources with which they many want to pursue market share building strategies like cementing their current position and maintain the competitive edge. They can foster a loyal customer base. But a company has to reach the position first, where it can call the shots about market share.
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