22Ms
Column 18 · Marketing-Finance and Performance · Era 2, Planning (1970s)
Market Share Effect
Outputs: performance · Landmark · Cluster VII, Outcomes
Description
Drawing on the PIMS database, they documented a strong positive relationship between market share and return on investment and proposed economies of scale, market power, and management quality as its explanations.
Managerial Implications
Market share and profitability are correlated, through scale, experience, and bargaining power, but share bought with price cuts destroys the margin it promised. Pursue share where scale economies and learning are real, and measure the cost of each share point. In many digital and service markets, relative share within a segment matters more than overall share, so define the denominator carefully.