225-Market Share Volatility in a Fast Growing Market
The smart phone market continues to grow quickly. The market for the operating systems on smart phones illustrates one of the patterns you will see in a fast growing market.
In order to see these patterns, we will use the Customer Buying Hierarchy. We will evaluate the reasons for market share volatility using the Customer Buying Hierarchy. Market share volatility is market share that moves from one supplier to another. (See “Audio Tip #26: Introduction to Step 6 of the Basic Strategy Guide” on StrategyStreet.com.) This market share movement may happen because new customers enter the market, where all competitors may compete for the customer, or because customers simply change their suppliers. The Customer Buying Hierarchy (CBH) holds that customers buy: Function, Reliability, Convenience and Price, in that order. (See “Audio Tip #95: The Customer Buying Hierarchy” on StrategyStreet.com.) New Functions or lower Prices dominate the causes of market share volatility in fast growing markets.
The emergence of the Apple iPhone, with the Apple operating system, illustrates the impact of new Functions. The Apple operating system virtually exploded on the market and probably created the consumer interest in smart phones. Apple was able to gain a quarter of the smart phone market very quickly on the basis of its many unique Functions, the result of the thousands of apps written for the operating system.
More recently, the growth of the Android operating system illustrates the second major driver of market share volatility in high growth markets, low prices. The Android operating system is growing very quickly now, taking share from the Research in Motion, Apple and Microsoft operating systems. What is its advantage? It’s free. The handset manufacturers and the cell phone service providers like an inexpensive operating system. So, it turns out, do many customers. The Android operating system is now grabbing market share by the handfuls. There is no let-up in sight.
Apple’s global operating system market share is below 17%. The overwhelming leaders in the market are the android phone producers, especially Samsung. The picture is different in the US market where Apple leads with nearly 50% of the market. This US leadership is the result of superior apps and, surprisingly, similar prices compared to Samsung phones. Android’s global leadership is the result of a far greater number of total apps and phones at many more price points than those offered by Apple. It is likely that Apple’s high US market share results in part from Samsung’s high pricing policy from a much smaller US competitor.
Apple retained its position as the second-largest smartphone vendor globally in 2021. However, despite its massive sales figures, the company faces countless Android manufacturers combined. According to Gartner, Apple shipped 235.70 million iPhones in 2021, while Android manufacturers shipped over 1 billion units.
In 2022, Apple dominated the US market with about a 50% market share. While it has fewer apps available than does the Android family, Apple has far more downloads and app revenue in the US than does the Android system. The Google app store has more than 3.5 million apps available for Android users. The Apple Store lists 2.2 million apps. However, in the third quarter of 2021, Apple’s app store generated $21.5 billion in global sales compared to Google Play’s $12.1 billion.
There is a common myth that Android phones are cheaper than are Apple phones. That certainly is a myth. In fact, Android’s top-of-the-line Samsung Galaxy lines of phones are priced slightly higher than Apple’s equivalent phone. The myth may be due to the fact that there are far more phones at lower price points in the Android world.
While Samsung is a distant follower to Apple in the US market, it’s pricing policy of pricing close to Apple has certainly helped Apple maintain its high US market share. Samsung has chosen not to exploit its potential superior economies of scale. See HERE for further perspective.
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