Playing To Win
Why I am Skeptical of Low Market Shares
They Stop You from Figuring out How to Grow
Whenever I am told that a company has under 20% market share of any market, I am skeptical. That is why my 3rd Playing to Win/Practitioner Insights piece is on Why I am Skeptical of Low Market Shares. (Links for the rest of the PTW/PI series can be found here.)
The low purported share may be factual based on the company’s generic definition of the market in which it operates. But I don’t take 8% share or 11% share or 17% share as helpful in any strategic sense. A company should have a definition of market share that helps it grow. These low shares don’t help, even though the sentiment is typically that with only 8% share, there are 92 points-of-share available, so growth opportunities are virtually limitless.
For the market in question to be validly defined and the 8% share to be a representative measure, the company needs to compete for all customers and compel 8 of every 100 customers for which it actively competes to choose it over the other competitors. Typically, when I take a closer look at where and how a low-share company competes, I find that it doesn’t compete in any way for at least half the supposed customers. Many customers actually buy a product (service) with distinctly different attributes, or they are served by a different distribution channel, or they are in a different geography. In fact, I find that the company’s share is actually over 20% of the customers who have a realistic chance of buying from it.
I also look at the question in reverse — from the customer angle. If the company actually has an 8% share in the eyes of all customers, then every customer is actively considering about a dozen suppliers in making the choice. In both B2B and B2C, very few customers actually consider a dozen suppliers when making a choice — whether of a shampoo, SUV, cellular service, bottling machine or accounting service. They actively consider a handful — which is consistent with companies having true shares above 20%.
Why Does it Matter?
It matters because I have rarely seen a company that both describes its current share as under 20% (let’s stick with the 8% share) and acts consistently with that belief, actually improve that share tangibly. When they think that 92 share-points are out there for the taking if they would just keep trying what they are currently doing, they tend to diffuse their marketing and sales efforts and not appeal powerfully to anyone in those 92 seemingly available share-points. As a result, I tend to find that small share positions remain small share positions, even though they appear to embody awesome growth opportunities.
Worse, the negatives compound themselves. In addition to having a very diffused marketing and sales effort at the 92% non-customers, who really wants to join a company that sees itself as an 8% player? And who wants to be the supplier to or distributor of an 8% player? Others in the ecosystem will adopt the company’s own attitude and see it as an inconsequential company in that big market and will prefer to align themselves with the bigger player(s). This effect makes it doubly hard to grow out of the low share.
The Superior Alternative
The superior alternative is to be more disciplined in defining the box in which you actually compete. What customers are buying a product (service) with your general set of attributes, in the general range of your price point, served (if relevant) by distribution channels you use, in a geography in which you operate? Right now, for your strategy, that is ‘the market.’ Share of anything else is effectively zero and right now, is not relevant to your progress.
Make sure that your share of that market is 20% or higher, so you have a consequential position. If it is not higher than 20%, go back to the box and tighten it some more. While this may seem artificial, it isn’t. Companies just don’t have fractional shares of big markets — they just think that they do.
When you have defined your market share as 20+%, your job is to fine-tune your strategy for and focus your selling effort on that market and that market alone. This will force you to focus on winning, not on participating, the latter being de facto the case for companies with fractional shares. The job is to achieve a 50% or greater share of that market as narrowly defined.
You will be, by definition, winning if you have more than 50% market share because your relative market share (RMS) will be greater than 1.0 (RMS is your market share relative to the biggest competitor in the market other than you. If it above 1.0, you are the leader; if it is below, a competitor is). Then, to those who want to work in that industry, you will be the attractive winner to work for. You will be the highest-volume supplier for the distribution channel. You will be the biggest volume purchaser of supplied inputs. Net, you will be a winner that is worthy of their attention.
The Next Step
When you have deployed this strategy to transform from a loser to a winner, you are set up to take the next step: to broaden.
Determine the adjacent Where-to-Play that is most attractive based on your capabilities and broaden to it, with the goal of attempting to achieve a leading market share within five to at most ten years. If that goal and timing seems unachievable, then pick a more tightly defined adjacent WTP. Again, the task is to win not to play. Having an RMS of less than 1.0 in the defined WTP ten years out implies that you are definitively losing. And the core rule is that playing to lose breeds more losing, while playing to win breeds more winning.
Often, customers drag winners into new WTPs, which is by far the easiest way to tackle a new WTP. Think of smartphones as a new WTP for Apple in 2007. Loyal Apple customers begged Apple to enter the smartphone business and lined up around blocks for a chance to buy the iPhone when launched. The advanced enthusiasm for the iPhone enabled Apple to strike an extremely favorable exclusive distribution deal with AT&T. It also enabled Apple to have the confidence to launch at substantial scale. Winning where Apple previously chose to play enabled Apple to have a leg up in winning in this new WTP.
And sometimes, the initially small total addressable market (TAM) grows because of your nurturing of it. Neither Google nor Facebook entered a large TAM. They both created (or entered — depending on how you want to define those markets) initially small TAMs (search-based advertising and social media-based advertising) that have grown continuously and explosively into giant TAMs. Why do Google and Facebook dominate those giant TAMs today? It is because they never sought or accepted a fractional share of these markets.
Practitioner Insight
Never define yourself as a small player in a big TAM and don’t spend your time chasing big TAMs. They are a trap. Playing to play in a giant existing TAM — like ‘services,’ ‘US healthcare,’ or ‘China’ — is a trap. Participating as a small share player in a large TAM is a recipe for pursuing a weak and diffuse strategy against bigger players, which is a recipe for losing and then losing more in a downward spiral. Instead, focus first on winning in a smaller TAM and once you are a winner there, then broaden from a position of strength, not of weakness.
