Some industry leaders have lower returns than the smaller competitors
Symptom: Some industry leaders have lower returns than the smaller competitors.
Implications for the market:
Size alone does not create better returns. In the average mature industry, less than a third of share leaders also lead their industries in returns on investment. In hostile market, that proportion ins even lower.
Share leaders fail to lead in returns for two principal reasons:
Poor customer screening: These leaders accept all customers, including those who will never return their cost of capital and who force the leader to offer benefits that do not pay for themselves.
Ineffective cost management: These leaders have failed to force the creation of the economies of scale their relatively large size should permit.
Low cost starts with the pursuit of customers that the company can serve well and finishes with a management system that ensures unit costs fall as unit sales rise.
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Perspectives: Conclusions we have reached as a result of our long-term study and observations.