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When Does Market Share Matter? New Empirical Generalizations from a Meta-Analysis of the Market Share–Performance Relationship

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Increasing market share is one of the most frequently cited business objectives, as it is assumed that more market share also leads to higher profitability. On the one hand, our study theoretically examines this relationship, which has changed due to globalization and the digitization of the economy; on the other hand, we carry out an empirical meta-analysis in which we evaluate almost 90 studies on the relationship between market share and profitability over 45 years - covering all relevant industries and continents. Based on over 800 identified effects, we find that financial performance only increases by an average of 0.13 percent if market share increases by one percent. This result is surprisingly low and above all significantly lower than the influence of customer relationships (six times stronger) and brands (three times stronger). We also find that the relationship between market share and profitability is highly context dependent (e.g. by region, industry, market maturity). Companies should therefore question the focus on market share as a key performance indicator (KPI) and adjust its use as a strategic metric in a differentiated manner depending on the specific conditions the company is facing.

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When Does Market Share Matter? New Empirical Generalizations from a Meta-Analysis of the Market Share–Performance Relationship

  1. 1. From: Market share should not be used excessively as a metric Customer and brand metrics have a much stronger financial performance impact Edeling, Alexander and Alexander Himme (2018)
  2. 2. From:From:  863 elasticities (i.e., % change in financial performance for a 1% change in market share) from 89 published studies  Studies were published between the years 1972 and 2017, come from six different continents, and deal with a wide range of manufacturing and service industries Analyzing the market share– financial performance relationship Edeling, Alexander and Alexander Himme (2018)
  3. 3. From:From: Average market share elasticity vs. customer and brand elasticities Edeling, Alexander and Alexander Himme (2018) %-increase in financial performance (firm profits, firm market value) Firm customer-related assets (e.g., customer satisfaction) Firm brand-related assets (e.g., brand image, brand awareness) Firm market share 1%-increase in… 0.13 leads to… 0.33 0.72
  4. 4. From:From: Reasons for low performance relevance of market share Edeling, Alexander and Alexander Himme (2018) Global reasons • Digitization • Globalization Customer-specific reasons • Loss of exclusivity • Negative network effects Firm-specific reasons • Slow processes • Excessive competitor orientation • Motivation problems for the market leader
  5. 5. From:From: Implications for usage of market share as key performance indicator Edeling, Alexander and Alexander Himme (2018) Objectives Customer and brand-related metrics should be included in dashboards as well as in employee communication and incentives Adaptation to specific situations Firms should use market share differently in different contexts (more important in emerging markets and for manufacturing companies) Budgeting Spend about 60% of the marketing budget on building customer relationships, 30% on developing strong brands, and only 10% on increasing market share

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