Research Highlights - September 2018

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A new study from the University of Cologne indicates that the market share of a company does not have a strong influence on its financial performance. The research published in the Journal of Marketing shows that companies should invest in building customer relationships and a strong brand, instead of market share.

Consider the facts. If their market share increases by 1 percent, the financial performance of a company only increases by 0.13 percent, on average. To arrive at that result, the researchers examined the relationship between market share and financial profitability using data from eighty-nine studies, of companies on six different continents, published between 1972 and 2017.

Studies show a much greater financial effect arising from other metrics, such as customer satisfaction and brand equity. In fact, better customer relationships deliver six times the impact of market share, while brand equity shows almost three times the effect of market share gains alone.

As the researchers explain, “Many CEOs still consider market share to be the most important indicator of business success. But in today’s digital market, small companies can often produce cost-effectively and sell to a global audience. That allows them to compete with the industry’s leading companies.”

They suggest setting goals and budgets based on their relative impact! Slow and steady investment in the

  • expansion of products,
  • improvement of customer service,
  • building customer relationships, and
  • development of a brand,

are the keys to the growth and survival of a company?

References

JOURNAL OF MARKETING, May 2018, Vol. 82, Iss.3, “When Does Market Share Matter? New Empirical Generalizations from a Meta-Analysis of the Market Share–Performance Relationship,” by Alexander Edeling, Alexander Himme. © 2018 American Marketing Association. All rights reserved.

To view or purchase this article, please visit: http://journals.ama.org/doi/10.1509/jm.16.0250?code=amma-site

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