Market Share or Profit? Pick One.

January 13th, 2009 Posted by Positioning 0 thoughts

In their 1981 marketing strategy classic (it must be a classic, there’s even a 20th Anniversary Edition!), Positioning: The Battle for Your Mind, Al Ries and Jack Trout noted that if a brand occupies the category leadership position on the “ladder of consideration” of a customer, that position was essentially unassailable. The “high ground”, if you will. Their caveat, of course, was that the positioned leader could conceivably make a mistake significant enough to cause their displacement from atop that ladder…or that a competitor could “bring in a new ladder” with new discriminating variables favoring the competitor and more important to the consumer. Otherwise the category leader could remain on top indefinitely. With no variance in B2C vs. B2B.

Ries and Trout also referenced the other benefits accruing to category leaders, and other marketing analysts and experts have weighed in on that topic as well. Some have said, in fact, that once the leadership position has been claimed, increasing market share becomes easier because of the momentum factor. They have also posited a direct cause and effect relationship between increased market share and increased profit. As if that outcome were an absolute.

To accept that argument, however, makes the assumption that the brand equity accompanying the leadership position is sufficient enough not only replace much of the selling expense required to maintain share, but also drive the winning of additional share…and thus additional profit. Step back and think about that for a minute. If the creation of that dynamic were so simple, why isn’t every top dog doing it and every category leader rolling in dough. It’s likely because the assumption is flawed.

The fact is, the only relative absolute is the one posed by Larry Light, who notes that “Market share costs money. Market rank makes money. Money follows rank, not share.” In Martin Mayer’s Whatever Happened to Madison Avenue, Syracuse professor John Philip Jones references the same outcome when noting “Number one brands are more profitable because their “share of voice” is less than their share of market. They can save some of their money…and take it right to the bottom line”. That certainly establishes the relationship between the leadership position and increased profit, but it is not the automatically occurring “auto pilot” outcome attached to increased market share that some imply. In fact, increased market share doesn’t drive any of it.

The fact is, it’s a marketing decision to extract profit or invest in the winning of additional share. If a marketer continues to invest at or above previous levels, a reasonable expectation would be that momentum plus maintained or increased investment could lead to increased share. But that cost would then reduce short term profit. We’re talking trade-offs here, not automatics or continuums.

Point being, the decision of whether to extract additional profit or invest to heighten the high ground may well reside at the marketing or brand manager level. Perhaps even more often…particularly in small to mid-size B2B categories…that decision would be made at the CEO level, with marketplace dynamics as the determinant of which outcome…increased market share or increased profit…is sought. With contradictory short and long term perspectives even provoking contrasting decisions.

In today’s economy, which would you pick? Are you sure?

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