NCPA - National Center for Policy Analysis

Market Space Versus Market Share

July 24, 2001

Market share, a company's percentage of an industry's total sales, is often used as a measure of success. However, some experts say that maximizing customer spending is the true measure of success.

  • British Petroleum (BP), for example, offers customers any form of energy that saves money, even if does not entail fuel, in order to secure the longevity, depth, breadth and diversity of customer spending, rather than maximize sales per product.
  • Unilever reduced the number of its home-cleaning brands from 1,600 to 400 to allow more investment in cleaning services rather than products.

In a recent study, researchers argue that six decisive strategies are necessary. First, power must be shifted from the company to the customer to attract additional customers and boost their spending. Second, companies must strive to "lock" customers into their products.

Third, market space must replace market share as the ultimate measure of business success. For example, the Lego toy company had a 72 percent worldwide market share, but moved into the computer world with such products as programmable robots because children were spending more time with computers than Legos. This allowed Lego to use its brand name to attract users.

Fourth, once a firm's market space has been defined, companies should offer services covering everything before, during and after a purchase decision.

Fifth, companies should reuse as many resources as possible. Thus, Lego's computer program offers users tips and advice for free, increasing its quality at little cost.

Sixth, firms should build regenerative relationships. The more interesting Lego's computer program becomes, the more people use it, the more advice users get and the better the program gets.

The article claims that these strategies will ensure that companies make substantial profits independent of their market share.

Source: "Market Space, Not Market Share," Economic Intuition, Winter 2001; based on Sandra Vandermerwe, "How Increasing Value to Customers Improves Business Results," Sloan Management Review, Fall 2000.


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