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While still growing some competitors are losing share

Symptom: While still growing, some competitors are losing share.

Implications for the market:

  • Even though successful today, any company losing share puts itself in grave danger. Although periods of rapid demand growth can mask the problem, the company is still vulnerable:

    • In time, competitors with growing share will overcome the last critical advantages held by the earlier market leaders — economies of scale and ownership of the customer — and will experience relatively higher profits even while growing share.

    • When a market becomes hostile, a company that has foregone share for profitability by keeping its price structure relatively high may find that its prices must fall and it will be earning lower returns on less volume than it could have had.

  • Loss of share can take several years to show itself in the financial results of the share losers. Returns can stay acceptable for long periods of time. However, once the returns start to fall, the drop can become precipitous and extremely difficult to reverse. The early 90s' experiences of IBM, Sears, and General Motors all illustrate this problem.

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

Analyses:

Perspectives: Conclusions we have reached as a result of our long-term study and observations.

  • "Is Bigger Really Better?"
     In the average large industry, the market share leader is only slightly more likely to lead the industry than is any one of the next three competitors in the industry. Market share leaders often fail to become return leaders because they serve some customers who yield low returns and rely on size alone to create economies of scale.

  • "Success Under Fire: Policies to Prosper in Hostile Times"
    A hostile market evolves through six predictable phases. Most companies fail, withdraw or become acquisitions before this evolution is complete. They fail because their management policies were not effective. The few who survive and prosper do so by making decisions that follow two rules: attract customers and discourage competition. Losers lose by not following the second rule.

  • "The Real Reason Market Share Matters"
     Market share does count, but for more than the reasons thought previously.

  • "The Two Best Consultants in the World"
    The two best consultants in the world are a company's customers and its competition. The customer informs a company about the value of its product. The competitor is an authority on the company's cost. Neither consultant is ever wrong.