Author: Jim Riley Last updated: Sunday 23 September, 2012
Why is Market Share important?
An important piece of research in the 1960's provided the
basis for understanding the importance of market share - and emphasised the
implications for marketing and business strategy.
The Profit Impact of Market Strategy ("PIMS") analysis was
developed at General Electric in the 1960's and is now maintained by the Strategic
Planning Institute. The PIMS database provides evidence of the impact of
various marketing strategies on business success.
The most important factor to emerge from the PIMS data is
the link between profitability and relative market share.
PIMS found (and continues to find) a link between market share and the return
a business makes on its investment. The higher the market share - the higher
the return on investment. This is probably as a result of economies of
scale. Economies of scale due to increasing market share are particularly
evident in purchasing and the utilisation of fixed assets.
Case Study on Market Share - Dixons (2000)
Dixons was widely regarded as the dominant electrical retailer
. What does dominant mean?
It refered to the fact that Dixons (which is the market leader) had a very
high relative market share. In other words, it was substantially bigger than
the next largest competitor. This can be illustrated by the chart below which
showed the leading
How might Dixon's market dominance enable it to further increase
its market share? Many retail analysts believe that the electrical retailing
market provides advantages to larger businesses. The reasons for the advantages of size include:
Buying advantage: An ability to use size to source product more cheaply is a clear advantage
in an industry that faces rapidly declining consumer prices
Volume advantage: As a low-margin business, retailers that can sell in high volumes are in the
best position to gain market share
Access to new products: The largest retailers typically have first-mover advantage in stocking new
"in demand" products that have just been released
As a price-led business, access to national advertising provides the ability
to keep customers regularly informed of the latest product deals. This helps
to reinforce customer perception of value, in addition to strengthening the
Dixons Group brands
Access to retail property: With the continuing trend towards out-of-town, larger destination stores that
offer a broader range of choice, and with restrictive planning laws limiting
opportunities, the larger electrical retailers have both the financial and
operational capacity to secure such important new sites.