FAILURE SHIFTS MORE SHARE THAN SUCCESS

by Donald V. Potter

For a company trying to gain share in a mature market, nothing succeeds like failure – the failure of a competitor. These competitors need not fail as organizations or disappear from the market altogether; they need only to fail their current customers, leaving those customers open to approaches from new suppliers.

Customers Are Pushed, Not Pulled Away

In mature markets, most customers have existing, long-standing supplier relationships. Why make a change? There is risk in movement – risk of the unknown, of internal disruption. Inertia always favors the current supplier.

Customers are seldom lured away by a competitor offering a better deal. Rather, customers are pushed away by their current suppliers who fail them in some way, make them uncomfortable with the existing relationship, and force them into finding alternatives:

Experience suggests that, for every one point of share that moves on success (e.g., a new entrant, a better offering), three points move on failure.

Common Ways to Fail Customers

Companies can fail their customers when:

They fail to match what competitors offer. The market overall may advance, as when there are new price points, features, delivery schedules and so forth. The existing supplier almost always gets a chance to match the better offering. To retain customers, the supplier need not exceed the market, but must keep pace.
Their product or service does not perform up to expectations. Customers come to expect certain standards of performance in product quality, stock outs and service levels. By maintaining that performance level, a company gains customer loyalty. By falling short, a company introduces doubt into the relationship. An uneasy customer will at least consider other options.
The company is slow to match lower prices. In hostile markets, there are far more price reductions than price increases. A company that gets dragged “clawing across the carpet” on price reductions teaches the customer to put another cat in the bag.

Can You Fight Back From Failure?

Failing a customer has serious consequences. When a customer evaluates new suppliers, he will also reopen the buying process. At a minimum, the new supplier will have to offer whatever the old supplier failed to provide. But other buying considerations may also get a fresh, hard look. If a change is necessary, why not go for something better?

Failing a customer opens a door, giving competitors a chance to break into existing relationships. Closing that door again can be much harder. Rebuilding the relationship, if it is possible at all, will require an investment of time and energy, and a willingness to perform to higher standards than those that sufficed before.

Implications For Market Share

Knowing that most share moves on failure, what should a company do?

Defend current share by taking care of customers. Maintain relative performance standards by keeping pace with competitors.
Take share by seeking out customers whose current suppliers are failing them. Find dissatisfied customers; they will be receptive. The goal is to gain share — that share need not be taken from the leader. Any gain in share will strengthen your position in a hostile market.

In hostile markets, most customers have multiple suppliers. Companies win by earning and then demanding a better position in each customer relationship by failing less often than do other competitors serving the customer.

(Note: This Perspective was written in the context of the economy in 1991. While some of the companies may have changed their policies or indeed no longer exist, the patterns they exhibit still hold today.)

Recommended Reading

For a greater overall perspective on this subject, we recommend the following related items:

Analyses:

Symptoms and Implications: Symptoms developing in the market that would suggest the need for this analysis.

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