[ad_1]
:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-817442226-941eb98ce7ac4b85a64ba444d36aea42.jpg)
Free market capitalism is an economic system that can generate great wealth and prosperity for businesses, nations, and their citizens.
It is also a system that creates winners and losers through competition. While competition can lead to innovation and invention, it can also deteriorate the market share of existing companies. In the worst case, it can lead to bankruptcy.
Market share is a company’s percentage of an industry’s total sales. It is crucial to the financial success of a company.
It’s been widely recognized since the 1970s that companies with greater market share are usually more profitable than those in the same industry with smaller market share.
There are three key strategies that companies often use to regain lost market share:
- Pricing changes
- Promotional changes
- Product changes
All have benefits but can be risky. Read on for details about each strategy.
Key Takeaways
- Market share is the percentage of total industry sales generated by a single company.
- Companies with greater market share are usually more profitable than those in the same industry with smaller market share.
- Companies compete with one another for market share.
- If market share is lost to a competitor, there are several strategies that companies often use to fight back: lower prices, greater marketing efforts, and innovation.
- While the strategies may be successful, they are not certain.
Pricing Changes
Lowering Prices
By lowering prices, companies hope to lure customers away from competitors. The benefit is a higher market share, but it comes at a cost: lower margins per unit.
This strategy is particularly attractive to large companies that have high economies of scale. This allow them to operate at a lower marginal cost than their competitors. Or it can make it possible to operate at a loss, if necessary.
It’s a risky strategy because, once prices drop, it can be hard to raise them again unless the company regains enough market share to muscle out its competitors.
Everybody likes a good sale, and being able to entice customers to return through lower prices can be an excellent short-term strategy.
But keep in mind that when competitors see lower price sales, they often lower prices in turn. This benefits consumers but can lead to a race to the bottom for businesses.
Promotional Changes
Promoting the Brand
Another way a business can regain market share is to change its methods of promotion. This can include increasing the advertising budget and putting the power of branding to work for the firm.
With this strategy, company leaders must identify the specific issues that need to be addressed to regain market share—the reason(s) it lost it, the customer type that switched, and the right audience to target for its promotional efforts.
Such efforts can be very successful. Or, they can be a costly exercise.
For example, national retailer JCPenney notably struggled with rebranding in the 2010 to 2012 period, while competitor Target (TGT) found success in the early 2000s by marketing itself as a higher-end discount retailer.
The combination of advertising, marketing, and promotion can be a tried and true method of regaining market share. Just keep in mind that advertising is an on-going process and the competition is spending money on advertising as well.
Important
Excellent customer service can cause customers to stick with a business even if prices are better elsewhere. It can also cause customers to jump ship to a competitor with higher prices. So customer service may play a role in helping a company maintain, or regain, market share.
Product Changes
Updating Product Offerings
To regain market share, a company can revamp its offerings to better meet customer needs or to provide something new.
Apple (AAPL) tried this tactic in 2014 by introducing the iPhone 6, a significantly changed version of its smartphone. And it met with great success as a result.
An instant hit, the iPhone 6 enabled Apple to take back some of the market share it had lost to Google’s (GOOGL) Android.
The company has continued its strategy of introducing new iPhone versions periodically, launching iPhone 16 on Sep. 20, 2024 and the less costly iPhone 16e on Feb. 28, 2025.
This strategy can be combined with raising prices to introduce another aspect of differentiation or to position the company’s offering as a premium product.
Necessity may be the mother of invention. But competition may be the spur for noteworthy innovation in the business world.
Coming up with new or updated product offerings may help a company regain market share in the short-term. Yet it has to keep innovating and introducing novel and exciting products that consumers will clamor for to maintain or grow that share.
Why Does Market Share Matter?
It matters because it reflects a company’s sales, which are the key to profitability and success.
What Affects Market Share?
Some things that can affect market share—think sales—are product prices, the introduction of new products, customer satisfaction and loyalty, quality of service provided to customers, innovation, product quality, and advertising.
Can a Company Regain Market Share Once It’s Lost?
Yes, it can. To do so, it must assess the problems that caused the loss and address them effectively with one or more strategies that it believes can change consumer attitudes and support greater sales.
The Bottom Line
In free-market capitalist economies, competition between companies can lead to changes in market share.
When a company loses its market share to a competitor, it can try to regain it by lowering its prices, promoting the brand, and updating its product offering.
While none is guaranteed to work, they’re often used by companies with success.
[ad_2]
Source link