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Importance of market share & market leadership (HL)

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  • Unit 4 - Marketing/
  • 4.1 Introduction to marketing/
  • Importance of market share & market leadership (HL)

The importance of market share and market leadership (AO3) (HL only)

Market share is a measure of the size of a business in comparison to others in the same industry by calculating its proportion of the total value of sales revenue in the industry. The firm with the largest market share in the industry is known as the market leader. Market share is the single most important measure used by marketers to judge the effectiveness of their marketing campaigns and marketing strategies. Hence, a greater market share is highly desirable.

 As with professional athletes, the market leader enjoys the status of being number one in its field or industry; it leaves the rivals behind. Watch Usain Bolt’s record-breaking 100 metres race in just 9.58 seconds back in 2009 here.

An example of market leadership is Velux - the leading brand in bespoke residential windows in Europe - a position it has held for over 75 years! Watch this short video clip that shows how Velux's innovative window design transforms into a balcony with the touch of a button:

Market leadership brings significant benefits to a business, such as:

  • The status as market leader can be beneficial to the firm’s future strategy as it is able to shape the industry whilst competitors merely follow the trends set.

  • The positive corporate reputation and its status as market leader can help the business to attract more investors, as well as higher quality employees.

  • Having the largest market share suggests the market leader enjoys brand loyalty, so customers are prepared to pay higher prices.

  • By being the largest firm in the industry, the market leader gains from economies of scale, so its unit costs of production are lower. Essentially, this generates higher profit margins for the market leader.

  • For firms that rely on other businesses to sell their products, such as Coca-Cola or Heinz, retailers and other distributors are more likely to hold the products of market leaders as part of their inventory (in order to improve their own sales and profits).

  • Collectively, these competitive advantages create a barrier to entry for any firms considering entering the industry. They also weaken the competitiveness of existing rivals in the market due to the strategic superiority of the market leader.

Other examples of market leaders in their respective industries include:

  • Adidas and Nike (sports apparel)

  • Amazon (e-commerce)

  • Boeing and Airbus (aircraft manufacturing)

  • Coca-Cola and Pepsi (carbonated soft drinks)

  • FedEx, DHL, UPS, and TNT (courier services)

  • Google (search engine / advertising)

  • McDonald's, Burger King, Subway, and KFC (fast food chains)

  • Microsoft (computer software)

  • Samsung, Apple, Huawei, and Xiaomi (smartphones)

  • Starbucks, Costa Coffee, and Tim Hortons (coffee chain)

Of course, market leadership does not guarantee future success, but it does create an incentive for businesses to make appropriate strategic decisions in order to remain competitive. In addition, negative changes in the external business environment can harm the operations of all firms in the industry, but it is the largest organizations that stand any chance of surviving such adversities.

 Case Study 1 - The gifting of experiences

British Motor Racing experience at Silverstone, ‎Northamptonshire, UK

Giving experiences to people as a gift is a growing trend. The increased use of social media has contributed to this trend as people like to post pictures and videos of themselves doing interesting things, such as a driving experience on a race track or a sky dive from an aircraft.

People post memories of these experiences on platforms such as Instagram, TikTok, and Facebook. This has created higher demand for such experiences, such as action/adventure holidays,attending football (soccer) matches, cooking classes, dirt bike racing, hot air balloon rides, martial arts lessons, pottery, swimming with dolphins, and volunteer experiences.

 Case Study 2 - The demise of Kodak

Camera film is a largely obsolete product

Over time, is is common for products and services become obsolete due to the product life cycle. This means they have reached the end of their product life cycle and have even been withdrawn from the market or only exist for buyers in highly niche markets.

An example is Kodak, which was the world's most popular brand of camera films for over 100 years. Developments in technology meant that non-digital cameras and camera films became obsolete goods. A large number of businesses such as photograph developers and retailers that sold Kodak camera film, as well as CDs and DVDs to store their photos, faced minimal demand for their products, so many eventually went out of business. Apple’s iPhone, first launched by Steve Jobs in June 2007, introduced the world to the use of smartphones on a mass scale, making analogue and digital phones (without a camera function) obsolete products to the general public.

     Key concepts - Change, Creativity, and Sustainability

The needs and wants of customers change over time and businesses exist to meet these changing desires and preferences. Being adaptive to change is therefore vital for the sustainability of a business. Consider the following as examples:

  • In many parts of the world, there has been an increase in demand for foods for people with specialist diets, such as gluten-free food, vegan products, and non-dairy milk drinks and therefore more businesses start to provide them.

  • More people need external portable battery packs for their smartphones and power plugs with USB connections.

  • The increase in online shopping (especially during and after the global coronavirus pandemic that caused governments to issue 'Stay at Home' rules during national lockdowns) has increased the demand for home delivery services. This includes greater demand for food deliveries, for example.

So businesses produce new products and provide new services and/or adapt existing ones to meet the evolving needs and preferences of their customers.

 Key concept - Change

Factors that cause successful firms to evolve their marketing strategies as a response to changes in customer preferences include:

  • Changing level of consumer incomes

  • The state of technology

  • The external business environment, such as the state of the economy

  • Societal norms, such as ethical business practices

  • Products becoming obsolete

  • Changes in fashion and the tastes.

Fashion designers have to keep up with changing trends

Essentially, successful organizations adapt their marketing strategies in response to changes in customer preferences and changes in the industry. For example, the popularity of mobile technologies has fuelled the increased use and reliance on electronic commerce (e-commerce) and social media marketing (SMM).

Internet technologies have enabled companies such as Amazon and eBay to improve their marketing strategies by focusing more specifically on the needs of their customers. Algorithms and online systems enable these companies to “learn” from shopping habits of their customers, in order to recommend other related goods and services that the customers may be interested in purchasing. Businesses can gather data to determine trends and gather other important information, such as feedback from customer reviews, in order to further enhance their marketing strategies.

 Key concept - Ethics

Customers are also increasingly aware of and interested in the ethical behaviour of businesses. Ethical business behaviour can be described as what is deemed by society to be morally acceptable, i.e. what is “right”.

By contrast, unethical business behaviour is what society regards as being immoral, unjust and unfair, i.e. what is “wrong”. Ethics can affect all aspects of business behaviour, including a firm’s marketing strategies. Having a reputation for being socially responsible can certainly increase a firm’s competitiveness.

 Business Management Toolkit - STEEPLE analysis

A marketing strategy that is effective today is not necessarily so tomorrow, due to the dynamic nature of the external business environment (see STEEPLE analysis).

To be effective, a firm’s marketing strategies need to consider changes in the external environment, such as the latest social and economic trends. For example, customers’ preferences and priorities change significantly over time, so successful businesses respond in different ways to meet these new demands. Hence, it is important for businesses to have access to the latest market research findings so that they understand the changing conditions of the markets in which they operate.

An example is Tesla, with its increasingly popular motor vehicles. With a fast growing number of drivers who are conscious and concerned about the environmental impact of petrol-fuelled cars on the road, Tesla invested huge amounts of money in electric cars. The company’s marketing strategy directly addressed the changing customer preferences in the car industry - delivering high quality, well-designed and energy efficient cars that are fast.

Essentially, market leadership enables businesses with the largest market share to benefit from economies of scale, customer loyalty, and price leadership in an industry. These forms of competitive advantages for market leaders also act as barriers to entry for firms wanting to compete in the industry dominated with well established businesses that enjoy high market share.

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