Market Share and Financial Performance

Value LeveragingEdeling, A.; Himme, A. · 2018Journal of Marketing
Topicsmarket share·financial performance·meta-analysis·elasticity·b2b·b2c·hierarchical linear model

Many companies make growing market share their main goal, expecting a bigger share to bring higher profits. Financial performance here means profitability rates and stock market value. Imagine you are the CMO of a company that sells to both consumers and businesses across the United States, Western Europe and emerging markets. How much weight should market share targets get in each part of your business?

Higher market share goes with modestly better financial performance, and with other factors held equal the link is strongest for firms that sell to consumers or face a moderate number of competitors.

Data chart

Market share has a weaker link to financial performance than customer and brand assets

Percent change in financial performance for a 1% gain in each; market share's figure covers profit rates and stock market value, while the customer and brand figures come from a separate review and cover firm value only

Customer assets, such as customersatisfaction0.72%Brand assets, such as brand equity0.33%Market share0.13%
  • Market share shows the weakest of the three links.

1% more market share goes with about 0.13% higher financial performance, a weaker link than customer and brand assets show with firm value.

Customer and brand assets are average firm-value results from a separate review of studies (Edeling and Fischer 2016), so the comparison is approximate; market share's exact average is 0.132 across 863 estimates of profit rates and stock market value, and 0.102 for stock market measures alone.

Data chart

Market share is linked more strongly to financial performance for firms that sell to consumers

Extra percent change in financial performance for each 1% more market share, compared with firms that sell only to businesses, other factors held equal

Firms that sell only to businessesFirms that sell only to consumers+0.220%
  • The link is stronger for firms that sell only to consumers.

With other factors held equal, market share is linked more strongly to financial performance for firms that sell only to consumers than for firms that sell only to businesses.

Gap over firms that sell only to businesses, holding industry, region, competition and study methods equal (829 estimates from 85 studies); exact value +0.220. Raw averages run the other way (0.373 for firms selling only to businesses, from 55 estimates, against 0.175 for those selling only to consumers, from 99) because they do not hold those differences equal.

Action guide

  1. Favor customer and brand assets over share gains when the two compete.Keep share targets if they motivate your teams, but add customer satisfaction and brand equity to your leadership scorecard.
  2. Set your share priorities by customer type.Give market share much more weight for your businesses that sell to consumers than for those that sell to other firms.
  3. Give market share more weight if you make goods rather than services.The link is stronger for manufacturers, with other factors held equal.
  4. Set share weights by region and by the business cycle.Weight share more in Western Europe and emerging markets than in the United States. Push share gains during recessions in emerging markets, but during expansions in the United States.
  5. Pursue share gains most in markets with a moderate number of competitors.Ask your strategy team to sort your markets by how many competitors share them, not by how fast they grow, before you set share targets.
  6. Before setting share targets, ask whether your analytics team's estimates correct for feedback.Strong financial performance can fund the marketing that wins share, which inflates estimates that ignore it.

Evidence

  • On average across 89 studies, 1% higher market share is associated with about 0.13% higher financial performance. A separate review finds stronger links to firm value for customer assets such as customer satisfaction (0.72% per 1% gain) and brand assets such as brand equity (0.33%). It measures firm value only, so the comparison is approximate.
  • After accounting for industry, region, competition and study methods, the link between market share and financial performance is much stronger for firms selling only to consumers than for firms selling only to businesses.
  • With other factors held equal, the link between market share and financial performance is weaker for service firms than for manufacturers. For manufacturers it has been weaker since 1993, possibly reflecting the spread of the internet.
  • With other factors held equal, the link between market share and financial performance is stronger in Western Europe and emerging markets than in the United States. It has weakened over time in both regions. In recessions it strengthens in emerging markets but weakens in the United States.
  • Market share has its strongest link to financial performance in markets with a moderate number of competitors, compared with markets that have many small competitors or a few large ones. Across all markets combined, market growth makes no reliable difference.
  • After correcting for the possibility that strong financial performance helps firms gain share, the average is about 0.07% higher financial performance per 1% higher market share, versus about 0.13% before the correction.

Key takeaway

Your leadership team should weight market share targets by market, giving share more weight in consumer markets.

Limitations

These figures cover manufacturing and service firms on six continents from 1949 to 2013, and measure profit rates and stock market value, not absolute profit level. They do not cover purely digital businesses, which fall outside the underlying studies.

Source

Edeling, A., & Himme, A. (2018). When Does Market Share Matter? New Empirical Generalizations from a Meta-Analysis of the Market Share-Performance Relationship. Journal of Marketing, 82, 1–24. https://doi.org/10.1509/jm.16.0250.

https://doi.org/10.1509/jm.16.0250

Exact values behind the rounded figures: average market share–financial performance elasticity 0.132, corrected average 0.065, and a business-type difference of 0.220 for firms selling only to consumers, compared with firms selling only to businesses.