Increasing market share is one of the most frequently cited business objectives, as it is assumed that more market share also leads to higher profitability. On the one hand, our study theoretically examines this relationship, which has changed due to globalization and the digitization of the economy; on the other hand, we carry out an empirical meta-analysis in which we evaluate almost 90 studies on the relationship between market share and profitability over 45 years – covering all relevant industries and continents. Based on over 800 identified effects, we find that financial performance only increases by an average of 0.13 percent if market share increases by one percent. This result is surprisingly low and above all significantly lower than the influence of customer relationships (six times stronger) and brands (three times stronger). We also find that the relationship between market share and profitability is highly context dependent (e.g. by region, industry, market maturity). Companies should therefore question the focus on market share as a key performance indicator (KPI) and adjust its use as a strategic metric in a differentiated manner depending on the specific conditions the company is facing.
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Edeling, Alexander and Alexander Himme (2018), “When Does Market Share Matter? New Empirical Generalizations from a Meta-Analysis of the Market Share–Performance Relationship,” Journal of Marketing, 82 (3), 1-24.
The impact of market share on financial firm performance is one of the most widely studied relationships in marketing strategy research. However, since the meta-analysis by Szymanski, Bharadwaj, and Varadarajan (1993), substantial environmental (e.g., digitization) and methodological (e.g., accounting for endogeneity) developments have occurred. The current work presents an updated and extended meta-analysis based on all available 863 elasticities drawn from 89 studies and provides the following new empirical generalizations: (1) The average raw market share–financial performance elasticity is .132, which is substantially lower than the effectiveness of other intermediate marketing metrics. This result challenges a widely used strategy that solely focuses on increasing market share. (2) Elasticities differ significantly between contextual settings. For example, they are lower for business-to-business firms than for business-to-consumer firms, for service firms than for manufacturing firms, and for U.S. markets than for emerging and Western European markets. The authors also observe differences between countries with respect to a general time trend (e.g., lower elasticities in recent times for Western European markets) and recessionary periods (e.g., lower elasticities in the United States, higher elasticities in non-Western economies).
Special thanks to Kelley Gullo, Ph.D. candidates at Duke University, for their support in working with authors on submissions to this program.
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