The Myth of Market Share
By Richard Miniter
*A Book Review*
by Michael C. Gray
© 2020 by Michael C. Gray
Shareholders, management and boards of directors of many corporations are focused on market share when evaluating business performance.
They believe that market share leads to profitability.
Richard Miniter explodes that myth in The Myth of Market Share.
According to Richard Miniter, the error leading to the myth is the belief that correlation equals causation. Many leading, profitable businesses in their industries also have large market shares, but that's not necessarily the case.
The most glaring example is the dot-com boom and bust of the late 1990s. Venture capitalists and stock market investors encouraged fledgling internet-focused businesses to grow quickly to establish market share. The investors discovered, as Yogi Berra would say, "There's no THERE there." The companies didn't have the financial performance and resources to survive, and most of them collapsed. Even Amazon.com had to work through years of losses and reinvent itself by offering more products beyond books, providing cloud services to other businesses, and becoming a "toll booth" middleman between customers and other businesses in order to eventually become successful.
According to Richard Miniter, the idea of market share dominance became popular during the industrial revolution. At that time, barriers to entry were high because capital wasn't widely available, so there weren't many competitors in the marketplace. There was enough demand for products in the marketplace that manufacturers were challenged to make enough products to satisfy the demand. Producers had more power in the marketplace enabling them to charge higher prices.
Our economy has evolved so that capital is widely available through venture capitalists and an active stock market, lowering barriers to entry and increasing competition. Now producers have excess capacity, giving consumers more power in the marketplace leading to lower prices.
Companies often buy market share through discounting the prices of their products, treating their products as commodities. Lower prices generally lead to lower profits.
More profitable companies tend to differentiate what they offer, including offering superior service and tailoring what they offer for niche groups, so they can command higher prices leading to higher profits.
The Myth of Market Share includes many case studies of businesses that brought financial ruin on themselves by making market share their major focus, while competitors focused on customer service and profitability, resulting in superior financial strength.
To make better business decisions, investors and corporate managers and leaders should study The Myth of Market Share.
Buy it online at Amazon.com: The Myth of Market Share: Why Market Share Is the Fool's Gold of Business (Crown Business Briefings Book 1).
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