It doesn’t take a seasoned financial analyst to know that owning a larger share of the market generally means that you have more opportunity to rack in the big monies — although several studies have confirmed this trend with empirical evidence. However, in an era defined by
Analysing over 6,000 cases from 800 US companies spanning the last 25 years, a new groundbreaking study unveils that
The erosion of market share's influence stems from the disruptive forces unleashed by
In addition, while a higher market share used to be a signal of quality, digitisation has since helped diminish this image. As the cost of online distribution fell, it helped ease the entry of new players into the market, which was highly advantageous for firms with relatively smaller market shares.
Further, customers can now gauge prices easily to ascertain what benefits them on e-commerce platforms, diminishing the apparent monopoly of larger companies with significant market share.
Further, the study also found that the impact of declining market share on profitability varied across companies based on how and which aspect of their
When companies go through digital changes, they can focus on improving internal operations inside the company or on upgrading their interactions with customers. These two types of changes can affect how much market share a company has and how much money it ends up making.
For example, if a company focuses on improving interactions with customers using digital tools, it can become more efficient, especially in the case of big firms with access to a ton of data. But if an organisation focuses on enhancing its operations better with automation and AI, it can become more efficient too, which could be especially profitable for smaller companies with less market share.
"Small companies with a smaller market share often have more to gain," affirms study author Felix Sklenarz, highlighting the democratising influence of digitalization. For managers navigating this digital frontier, recalibrating key performance indicators (KPIs) emerges as imperative. The traditional yardsticks of success must evolve to reflect the intricacies of digital markets.
The findings of this research have been published in the International Journal of Research in Marketing and can be accessed here.