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Part 2: Sources of New Market Share

You might gain market share because you have the industry's fastest growing customers. More likely, you gain market share by exploiting customer volatility. Volatility is the measure of the amount of share customers shift from one set of suppliers to another. They make this shift either because a supplier wins their volume or because their current supplier "fails" them in some way, opening their relationships to other competitors. The majority of volatility in many markets is the result of someone's failure. That means that you want to understand which competitors are most likely to fail their customers so that you have a better chance of picking up their "failed" volume.

The average company would like to increase its market share. Most of us assume that the best way to do that is to call on, and win the business of, the largest and fastest growing customers in the market. That approach may work well when an industry is young. It becomes less effective as the market matures, though.

A company in search of market share has only three places to look:

  • First, it can seek togain share because its customer relationships grow faster than the average customer in themarket. You analyzed the attractions of customer segments in the previous section.
  • Second, the Company might gain market share from one of its competitors. This market share gain is positive volatility.

Volatility is a measure of market share that changes suppliers during a period of time. (See Perspective: "Finding the Open Door.") Positive volatility means that this market share change benefits the Company.

  • Third, the Company might seek a market share gain by losing less market share than the average competitor in its market. This sounds like an odd way to gain share, but it can be very effective. A Company maintaining lower than average negative volatility, where volatility reduces the Company's share, gains market share in its industry.

Market share volatility always has a cause. The Company must understand and use these causes to exploit the opportunities that volatility presents. One cause of volatility is a "win," where one competitor simply beats another in competition for the customer's business. A second, and more common, cause of volatility in most markets is a "failure," where an incumbent supplier disappoints his customer in some way and causes the customer to open his relationship to other competitors. Failure in a customer relationship is the hallmark of the weak competitors in the market. (See Symptom: "Share is tougher to shift.")

Each of these factors is important to your analyses of segments in the market. Industry volatility must support your aspirations to change your market share. As you seek to gain market share, you must employ tactics that will enable you to "win" in the market, to exploit others "failure" and to avoid the occasions of your own "failure." You can certainly exploit others. "failure" by focusing marketing and sales efforts on the customers of weak competition. This section of the site helps you analyze industry volatility, winning and failing with customers, and the potential cost savings of focusing on the customers of weak competitors.

This section of StrategyStreet covers these issues in the following topics:

Industry Volatility
Capsule: Industry volatility is market share that moves from one set of suppliers to another. The Company who loses the market share suffers Negative volatility while the Company that gains the share has Positive volatility. The more competitive the market, the more likely that volatility will be low rather than high and that the volatility will take place in less attractive market segments.

Comparison of Volatility and Sales Growth
Capsule: Volatility and Sales Growth are important strategic concepts. They differ from one another and co-exist in most markets and companies. Neither depends on the other, though both change market share for a company. This comparison seeks to make each concept clear.

Win vs. Failure
Capsule: Volatility happens either because someone wins the customer's business outright or because a supplier to the customer fails that customer. When the incumbent supplier fails the customer, the customer looks to other suppliers to replace some or all of that failing competitor's sales volume. The question of whether a market is a "win" or a "failure" market has an important effect on marketing, sales and product development. The more competitive the market, the more likely it is that failure causes volatility.

Competitor Weakness
Capsule: In a fast growing market, you are best off going after the largest customers in the market place. But if the market is difficult, you should spend more marketing and sales dollars trying to sell customers of weak competitors, those companies losing market share in your industry. The cost of gaining share from weak competitors will be considerably lower than the cost of beating a strong competitor.

Summary Points

Next: Industry Volatility