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304 PART 4 BUILDING STRONG BRANDS
By introducing ground delivery,
FedEx challenged UPS on its
home turf.
Market diversification shifts the company’s focus into unrelated industries. When U.S.
tobacco companies such as Reynolds and Philip Morris acknowledged the growing curbs
on cigarette smoking, instead of defending their market position or looking for cigarette
substitutes, they moved quickly into new industries such as beer, liquor, soft drinks, and
frozen foods.
• Contraction Defense. Sometimes large companies can no longer defend all their territory. In
planned contraction (also called strategic withdrawal), they give up weaker markets and reas-
sign resources to stronger ones. Since 2006, Sara Lee has spun off products that accounted for
a large percentage of its revenues—including its strong Hanes hosiery brand and global body
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care and European detergents businesses—to focus on its core food business.
Increasing Market Share
No wonder competition has turned fierce in so many markets: one share point can be worth tens of
millions of dollars.Gaining increased share does not automatically produce higher profits,however—
especially for labor-intensive service companies that may not experience many economies of scale.
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Much depends on the company’s strategy.
Because the cost of buying higher market share through acquisition may far exceed its revenue
value, a company should consider four factors first:
• The possibility of provoking antitrust action. Frustrated competitors are likely to cry
“monopoly” and seek legal action if a dominant firm makes further inroads. Microsoft
and Intel have had to fend off numerous lawsuits and legal challenges around the world
Optimal Market Share as a result of what some feel are inappropriate or illegal business practices and abuse of
market power.
Profitability • Economic cost. Figure 11.3 shows that profitability might fall with market share gains
after some level. In the illustration, the firm’s optimal market share is 50 percent. The cost
of gaining further market share might exceed the value if holdout customers dislike the
company, are loyal to competitors, have unique needs, or prefer dealing with smaller firms.
And the costs of legal work, public relations, and lobbying rise with market share. Pushing
0 25 50 75 100
for higher share is less justifiable when there are unattractive market segments, buyers who
Market Share (%)
want multiple sources of supply, high exit barriers, and few scale or experience economies.
|Fig. 11.3| Some market leaders have even increased profitability by selectively decreasing market
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share in weaker areas.
The Concept of
• The danger of pursuing the wrong marketing activities. Companies successfully gaining
Optimal Market Share share typically outperform competitors in three areas: new-product activity, relative product
