Market share is not enough: why strategic market positioning works

Abstract

PurposeThe author and his colleagues at LEK Consulting LLC have helped hundreds of firms over the years to achieve higher growth, increase their profit margins in existing businesses, add scores of new services and products, and make hundreds of successful M&A transactions while using strategic market positioning principles. This article has been written by the author with the aim of making the principles better known to others after having seen these principles work for his clients.Design/methodology/approachResearch conducted by the author's firm, LEK Consulting LLC, combined with experience gained from hundreds of client engagements, has shown that while average shareholder returns for most industries tend to cluster in the 0 percent to 20 percent range with amazing consistency, there can be spectacular differences among companies within almost every industry sector. A top performer in a particular sector can be 200, 300, or even 1,000 percent better than the sector's worst performer. The research and experience with clients show that high‐performing companies have learned how to determine their strategic market position, or SMP, and how to make investments that increase overall SMP and drive long‐term value.FindingsTraditional strategic thinking argues that greater market share equals greater profit. But bigger is not necessarily better; in many cases, it can actually be worse. As most companies use it, market share can be a misleading and dangerous measure. The trick lies in being able to identify the right market segments in which to focus efforts and improve one's share. Successful companies understand where growth will build competitive strength and profitability and where it will not.Originality/valueStrategic market positioning is a tool for decision‐making shared by management functions throughout an organization that can be applied in a broad range of situations. Examples include prioritizing sales or development efforts, finding new and profitable markets, improving low‐growth or low‐margin businesses, and identifying acquisition opportunities.