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When does market share play a role?

A new meta-analytical study

The influence of market share on a company's financial performance is one of the most studied relationships in marketing strategy research. In the 1980s, a true mantra prevailed in many companies, highlighting market share as the most important strategic factor. The positive correlation between market share and financial performance was confirmed in a first meta-analysis by Szymanski, Bharadwaj and Varadarajan in 1993. Since then, however, considerable changes in the environment (e.g. digitization) and methodological developments (e.g. use of panel data sets) have occurred, which made a new overview study necessary. 

Alexander Edeling from the University of Cologne and Alexander Himme from Kühne Logistics University present in an article, published in the May 2018 issue of the Journal of Marketing, an updated and expanded meta-analysis based on data from 89 primary studies from six different continents published between 1972 and 2017.

Market share is not everything
The authors conclude that the average relationship between market share and financial performance measures such as profitability or stock return is significantly positive. However, compared to other key marketing metrics such as customer satisfaction or brand equity, market share has less of an impact on financial performance. In addition, the authors were able to identify situations in which the market share has a higher performance relevance. Market shares should become more important in companies that mainly serve end consumers, that produce physical products instead of services, and that are active in emerging markets such as China or India.

Not only positive aspects
The central innovation of the study is that, in addition to positive aspects of market share (e.g. lower production costs due to economies of scale), negative consequences of a too strong focus on market share (e.g. excessive price concessions that have a negative impact on profitability) are taken into account for the first time. 

From theory to practice: Importance for companies
Alexander Edeling summarizes what these new findings mean for companies: "For many companies such as Volkswagen or German food retailers, market share continues to play a central strategic role. The results of our study should encourage managers to reevaluate their behavior and attach greater importance to other metrics such as customer satisfaction or brand strength".

More information in this article:
Alexander Edeling and Alexander Himme (2018) When Does Market Share Matter? New Empirical Generalizations from a Meta-Analysis of the Market Share–Performance Relationship. Journal of Marketing: May 2018, Vol. 82, No. 3, pp. 1-24.