SELF TEST #9: The Components of Company Share Change
True or false: A growing market share is always the sign of a company performing well in the marketplace.
False. Most of the time, a growing market share is a sign of a company performing well. On occasion, though, this sign may mislead us. A company may have very strong customers who are gaining share in their market and pulling the company along with them at the same time that the company has net negative volatility in its marketplace. This net negative volatility is a surer signal of the company's recent performance. When net volatility is negative, the company is not performing well.
What would you conclude if your growth rate due to your customers' growth were 7% and that due to volatility were minus 2% while in a market that grew at 5%?
Your company is in a net negative volatility position. It continues to maintain its share because it serves customers who are growing faster than the market. In virtually all cases, net negative volatility is the result of policy decisions by the company. The company should examine the reasons for its negative volatility and reverse the decisions which are responsible for its negative volatility. Most of the time, these decisions reflect policies on maintaining prices at high levels or setting a value proposition that is less attractive than those of others in an attempt to reduce the company's cost structure.
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