What is the ideal market share for your business?

In one of my previous blogs I talked about how the potential for growth within your business, and your industry as a whole, can be key to creating a sustainable business and your ability to sell your company in the future for a tidy profit. 

One significant aspect in growth potential is your market share within your industry. Working out the optimum market share for your business is the initial step, then you have to devise a suitable plan for achieving your ideal market share While, on the surface, this may seem a simple plan, the reality is that it can be hard for business owners to work out what they should be aiming for in terms of market share. This blog will give you tips for both determining what your goal should be, and helping you achieve it. 

What do we mean by market share?

Perhaps the most important part of this question lies in defining what ‘market share’ actually means for you. If I ask you what your market share is in your given field, you could give me an array of different answers and percentages, all with different justifications, and presumably all correct within their own right. It is clear therefore, that this is a rather niche question to answer, and I cannot stress enough, that you need to be free to define it in your own way.

For example, Leslie, who owns a private courier service, might define market share to mean across England, because this is where her company operates. At the same time, Hermes, a larger international courier, might count the whole of the UK, and devise their market share from there. On the other hand, Carl, who owns a local spa, will probably look at market share from a much narrower perspective, only covering his postcode, because this is the only place he operates and where he knows he can reasonably attract customers.

My main point here is: be free to define your own market! No two businesses are the same, and you need to tailor this question to suit your organisation, in order to provide a suitable plan for maximising your market position, profits and potentially your future selling price. 

Do I want to strive to have a monopoly of the market?

Whilst gaining a monopoly of your own defined market may seem an impossible feat, many people forget that, within accepted economic definitions, a 22% stake will give you a relative monopoly. In many cases a greater market share will mean greater profits, however there are key reasons why sometimes increasing your market share will be bad for your business.

Firstly, in many cases, once products start to sell quickly, the price will be driven down. Take the example of the 2017 craze of fidget spinners; these little pieces of metal – essentially – became a must-have for school children last year. Whilst the original products were slightly more expensive, the rapid increase in demand for them drove the prices right down. The same could be seen with the selfie stick craze.

The fidget spinner example also introduces the next problem with increasing sales of your product. Once it gains popularity, it is likely that competitors will come along and try to steal some of this popularity, once again driving down the price. I have written more about these ‘us too’ businesses, and their strengths and weaknesses, in one of my other blogs that you can find here .

If you are in a rapidly changing market you need be planning new products and services, ones which will support higher margins before the competition get into the market reducing prices once again.

Finally, selling more and more of your products, and gaining a larger market share might actually be detrimental for your brand’s image. As an extreme example, consider Bentley and Aston Martin. Due to their price and production capacity, Bentleys and Aston Martins are scarce, their scarcity is part of their magic Their brands have survived because they work for an exclusive clientele, with only a select few being able to afford their product. In essence, their brands revolve around having a small share of the market – although a relatively high share of the luxury car market.

So, should I seek to maintain a low market share?

No two businesses work the same – I cannot stress this enough. I cannot subscribe to a one-size-fits-all advice formula for every business. It is clear that the answer to this question depends on the size of your business, where you operate, what you sell, and a variety of other criteria.

Whilst it would be wrong to suggest that you should completely limit the quantity of products you sell, a generalisation can be made that if you are selling to a small group, you will find it easier to maintain the price of your goods or services, as long as other competitors can’t come in and copy what you are doing easily.

Of course, there are exceptions to every rule, and your business could be one of them. My example for this lies in Apple, whose brand revolves around anti-competition. They seek to maintain a large market share; in order to do so, they have created apps such as iMessage that are only compatible with their device – the more people that use them, the more non-users feel excluded.  As Apple has recently become the first business to be valued at $1 trillion, it’s a strategy that can work – but it doesn’t mean it’s right for all businesses.

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