How Businesses should show up depending on their market share.
Market share concept
Businesses are constantly battling for market share growth. Even if both the market and business are growing, the business mostly seeks market share growth validation.
Quick tip 1: Market share represents the percentage a business commands out of a total category. Example: Assume the total garment business size in country X is 100 units, if product x has 20units, it has 20% market share.
Now if the value of the category grows from 100 units to 120units, the category has grown by +20%. Yet within this growing industry, some brands would outgrow the others, these are the ones that grow share.
In case it is a declining category, the slowest loser grows the most share.
Market leaders’ burden
Within the category, there are those with the biggest market share : these are called the market leaders. Whilst it is great to be a market leader, the business cannot be complacent because that business is most permeable to decline because their business is the primary source of volume for new entrants.
Many market leaders tend to be global brands because they have the scale, resources, Research/development and financial muscle to out compete competitors. In some cases, market leaders are strong local players with Heritage or First mover advantage.
Business strategies tend to differ dependent on market share and business dynamics.
Market leaders’ pitfalls: As a market leader, complacency, arrogance and lack of innovation is a big watch out. Some market leaders never believe they can lose share and infact collapse until it is all done. I’ll use the football analogy here as it is a similar strategy I’ve seen market leaders use. In the business strategy, market leaders may tend to play the defensive game . Just like football, you can only play defense for so long. Imagine a football game where the leading team with a 1-0 scoreline starts to play defense from the 30th minute, it is highly likely the attacker equalizes by the 80th minute and wins in the 89th! This are examples of how business play defense from 30th minute.
1. Roll out permanent discounts/ promotion to “block off” new players. Whilst this can work tactically, it may cost the market leader a lot more as this can lead to price wars and the smaller player always has lower losses unlike the big player discounting value on a big business base.
2. Product dilution to cut cost: Usually, the new entrants come at lower prices and the global market players may choose to reduce product quality as a way to prevent price increases.
3. Price up: As market leaders are typically big companies, with huge overhead and expenses, consistent price up forgetting price elasticity curves are exaggerated in more competitive terrains is a definite NO. An alternative strategy is to expand the portfolio with value brands, smaller sizes of premium brands or acquiring smaller competitive brands.
4. Playing only the long term game, forgetting the short term and vice versa.
There are so many other pitfalls to watch out for but the real question is how should Market leaders behave? In addition to not doing the above, the game changer is deep understanding of consumer needs more than ever and translating that into relevant consumer centric innovations. With this, market leaders are able to recruit new consumers into the category, faster than they lose marginal share. This also positions them as true equity captains!
With the explosion of digital marketing, shared economies and content creators’ acceleration, the pioneers of social media technology showed some examples of this with the evolution of the, voice enabled virtual assistants, Metaverse, NFTs! It is innovation on tech solutions. A clear example of blue ocean strategy.
We can continue with Market challengers in the next episode! Or just another topic actually.
What do you think? What winning strategies have you experienced as market leaders? or market challengers? Let's talk!
Tolu Adedeji
Love simplifying marketing and business concepts.
