Great ideas: The myth of market share

Written by ProfitGuide

The key to business success is to capture as much of the market as you can, then wait for the profits to roll in, right? Not so fast. As Richard Miniter writes in The Myth of Market Share, “From the stylish offices of the failed dot-coms to the grimy steel mills of western Pennsylvania, this model has failed to deliver.” An obsession with sales above all else can lead to reckless discounts, mindless brand extensions and pointless mergers. In contrast, profit leaders such as Dell, Ryanair and Hoffman-LaRoche plan for profitable growth and then let market share come to them. Their key strategies include:

  1. Innovate your way into more profitable lines: In 1985, market leader Intel moved away from memory chips because it realized the real profits were in processors. It could do so only because it had the know-how to reinvent its business, thanks to a heavy investment in research-and because it had the guts to abandon a field where it was No. 1. Without that move, there would be no “Intel inside” today.
  2. Control costs ruthlessly: This is one of those humdrum but mission-critical tasks that profit leaders do extremely well. Ryanair has the lowest costs per mile travelled of any airline in the world-and the highest profits-thanks to an ultra-flat management structure, low staffing levels, fast turnaround of planes, avoidance of frills (it doesn’t even give passengers free peanuts) and flying from secondary airports with cheap landing fees.
  3. Smash barriers between departments: In most companies, the chief executive can talk to anyone he or she wants, and executives feel free to address their peers in other units. But in profit leaders, managers and even line employees communicate freely with people in other divisions to solve problems. Incentives such as employee share ownership plans and productivity bonuses can help break down barriers. A manager at America Online, which has an employee share plan, keeps AOL’s stock price as a screen saver on her computer, so “when someone e-mails me a problem, I think about that number.”
  4. Get the evidence needed to bring foot-draggers on board: Roche Diagnostics Systems, the medical testing division of Hoffman-LaRoche, suspected poor customer service at its 800 number was the main culprit behind an anemic bottom line. But many of its managers hid behind the rationalizations “Aren’t all customers hard to please?” and “Maybe we aren’t so bad after all.” Roche invested in customer-service research that made it painfully clear its 800 service was indeed getting killed by the competition. That convinced managers to stop denying the need for drastic change.
  5. Focus on short-term profits: Loss leaders only lead to losses. Good luck trying to make up the profits later, because competitors are rarely so obliging. Ryanair never opens a route that doesn’t promise to be immediately profitable. And Dell sells its computers at low prices-but never at a loss.
Originally appeared on PROFITguide.com