Market share is the holy grail for many firms. The more customers one has or the more units it sells, the better off it will be than its competitors. Sometimes, that reasoning plays out, other times it does not. Market share is relatively easy to build. I liken building market share to the insecure guy who buys rounds of drinks for everyone at a bar. He has lots of friends (i.e., market share) as long as the drinks are flowing. When his fortunes change and the money to buy drinks is gone, so are many of his friends. At that point, the money the poor guy has little to show for his investment.
The relationship between market share and profit works the same way. A company can build market share but do it in a reckless manner that hurts profitability. Ultimately, a business is striving to maximize profits, not the number of friends it has! Be cautious in foregoing revenue to gain market share via a low selling price.
In a recent interview, Dell founder and CEO Michael Dell indicated that a strategic shift in his company is emphasizing profits over market share. He is willing to give up Dell’s second place standing in PC market share if it means greater profits per unit sold. Dell summed up the strategy when he said “Do we want to sell the most numbers of units? No, we want to have the most profit.” That mindset will serve any organization very well.
Bloomberg.com – “Dell’s ‘Reshaping’ of PC Maker Means Chasing Services”
