Many firms use market share to set marketing goals and monitor performance. Recent meta-analytic research reveals the average economic impact of market share performance and identifies some factors affecting its value. However, empirical understanding of why any market share–profit relationship exists and varies is limited. The authors simultaneously examine the three primary theoretical mechanisms linking firm market share with profit. On average, they find that most of the variance in market share’s positive effect on firm profit is explained by market power and quality signaling, with little support for operating efficiency as a mechanism. They find a similar explanatory role of the three mechanisms in conditions where market share negatively predicts profit (for niche firms and those “buying” market share). Using these mechanism insights, the authors show that the value of market share differs in predictable ways between firms and across industries, providing new understanding of when managers may usefully set market share goals. The authors also provide new insights into how market share should be measured for goal setting and performance monitoring. They show that revenue market share is a predictor of firm profit while unit market share is not, and that relative measures of revenue market share can provide greater predictive power.
ArmstrongJ. ScottCollopyFred (1996), “Competitor Orientation: Effects of Objectives and Information on Managerial Decisions and Profitability,” Journal of Marketing Research, 33 (2), 188–99.
4.
BassFrank M.CattinPhilippeWittinkDick R. (1978), “Firm Effects and Industry Effects in the Analysis of Market Structure and Profitability,” Journal of Marketing Research, 15 (1), 3–10.
5.
BauerPaul W.BergerAllen N.HumphreyDavid B. (1993), “Efficiency and Productivity Growth in US Banking,” in The Measurement of Productive Efficiency: Techniques and Applications, FriedH.O.LovellC.A.K.SchmidtS.S., eds. Oxford, UK: Oxford University Press.
6.
BendleNeil T.BaggaCharan K. (2016), “Metrics that Marketers Muddle,” MIT Sloan Management Review, 57 (3), 73–82.
7.
BhattacharyaAbhiMisraShekharSardashtiHanieh (2019), “Strategic Orientation and Firm Risk,” International Journal of Research in Marketing, 36 (4), 509–27.
8.
BooneJan (2008), “A New Way to Measure Competition,” Economic Journal, 118 (531), 1245–61.
BresnahanTimothy F. (1989), “Empirical Studies of Industries with Market Power,” Handbook of Industrial Organization, 2, 1011–57.
11.
BuzzellRobert D.GaleBradley T.SultanRalph G.M. (1975), “Market Share: A Key to Profitability,” Harvard Business Review, 53 (1), 97–106.
12.
CarmanJames M. (1990), “Consumer Perceptions of Service Quality: An Assessment of the SERVQUAL Dimensions,” Journal of Retailing, 66 (1), 33–55.
13.
ChaudhuriArjunHolbrookMorris B. (2001), “The Chain of Effects from Brand Trust and Brand Affect to Brand Performance: The Role of Brand Loyalty,” Journal of Marketing, 65 (2), 81–93.
14.
ConnerKatherine R. (1991), “A Historical Comparison of Resource-Based Theory and Five Schools of Thought Within Industrial Organization Economics: Do We Have a New Theory of the Firm?” Journal of Management, 17 (1), 121–54.
15.
CretuAnca E.BrodieRoderick J. (2007), “The Influence of Brand Image and Company Reputation Where Manufacturers Market to Small Firms: A Customer Value Perspective,” Industrial Marketing Management, 36 (2), 230–40.
16.
DabholkarPratibha A.JohnstonWesley J.CatheyAmy S. (1994), “The Dynamics of Long-Term Business-to-Business Exchange Relationships,” Journal of the Academy of Marketing Science, 22 (2), 130–45.
17.
DemsetzHarold (1974), Toward a Theory of Property Rights. Basingstoke, UK: Palgrave Macmillan.
18.
DiMaggioPaulLouchHugh (1998), “Socially Embedded Consumer Transactions: For What Kinds of Purchases Do People Most Often Use Networks?” American Sociological Review, 63 (5), 619–37.
19.
EcholsAnnTsaiWenpin (2005), “Niche and Performance: The Moderating Role of Network Embeddedness,” Strategic Management Journal, 26 (3), 219–38.
20.
EdelingAlexanderHimmeAlexander (2018), “When Does Market Share Matter? New Empirical Generalizations from a Meta-Analysis of the Market Share–Performance Relationship,” Journal of Marketing, 82 (3), 1–24.
21.
ErdemTülinSwaitJoffre (2004), “Brand Credibility, Brand Consideration, and Choice,” Journal of Consumer Research, 31 (1), 191–8.
22.
FamaEugene F.FrenchKenneth R. (2008), “Dissecting Anomalies,” Journal of Finance, 63 (4), 1653–78.
23.
FarrellJosephKlempererPaul (2007), “Coordination and Lock-In: Competition with Switching Costs and Network Effects,” in Handbook of Industrial Organization, Vol. 3, ArmstrongM.PorterR., eds. Amsterdam: North Holland Publishing.
24.
FarrisPaul W.BendleNeil T.PfeiferPhillip E.ReibsteinDavid J. (2010), Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, NJ: Pearson Education.
25.
FerrierWalter J.SmithKen G.GrimmCurtis M. (1999), “The Role of Competitive Action in Market Share Erosion and Industry Dethronement: A Study of Industry Leaders and Challengers,” Academy of Management Journal, 42 (4), 372–88.
26.
GalizziMonicaZagorskyJay L. (2009), “How Do On-the-Job Injuries and Illnesses Impact Wealth?” Labour Economics, 16 (1), 26–36.
27.
GlazerRashi (1991), “Marketing in an Information-Intensive Environment: Strategic Implications of Knowledge as an Asset,” Journal of Marketing, 55 (4), 1–19.
28.
GoonerRichard A.MorganNeil A.PerreaultWilliam D. (2011), “Is Retail Category Management Worth the Effort (and Does a Category Captain Help or Hinder)?” Journal of Marketing, 75 (5), 18–33.
29.
HaleblianJerayrKimJi-YubRajagopalanNandini (2006), “The Influence of Acquisition Experience and Performance on Acquisition Behavior: Evidence from the U.S. Commercial Banking Industry,” Academy of Management Journal, 49 (2), 357–70.
30.
HallGrahamHowellSydney (1985), “The Experience Curve from the Economist’s Perspective,” Strategic Management Journal, 6 (3), 197–221.
31.
HambrickDonald C. (1983), “High Profit Strategies in Mature Capital Goods Industries: A Contingency Approach,” Academy of Management Journal, 26 (4), 687–707.
32.
HamlinRobertHenryJamesCuthbertRon (2012), “Acquiring Market Flexibility via Niche Portfolios: The Case of Fisher & Paykel Appliance Holdings Ltd.,” European Journal of Marketing, 46 (10), 1302–19.
33.
HanssensDominique M., (2015) Empirical Generalizations About Marketing Impact. Cambridge, MA: Marketing Science Institute.
34.
HellofsLinda L.JacobsonRobert (1999), “Market Share and Customers’ Perceptions of Quality: When Can Firms Grow Their Way to Higher Versus Lower Quality?” Journal of Marketing, 63 (1), 16–25.
35.
HobergGerardPhillipsGordon (2010), “Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis,” Review of Financial Studies, 23 (10), 3773–3811.
36.
JacobsonRobert (1988), “Distinguishing Among Competing Theories of the Market Share Effect,” Journal of Marketing, 52 (4), 68–80.
37.
JacobsonRobertAakerDavid A. (1985), “Is Market Share All That It’s Cracked Up to Be?” Journal of Marketing, 49 (3), 11–22.
38.
JinGinger ZheLesliePhillip (2003), “The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards,” Quarterly Journal of Economics, 118 (2), 409–51.
39.
KasmanAdnanOscarCarvallo, (2014), “Financial Stability, Competition and Efficiency in Latin American and Caribbean Banking,” Journal of Applied Economics, 17 (2), 301–24.
40.
KatsikeasConstantine S.MorganNeil A.LeonidouLeonidas C.Tomas MG.. Hult (2016), “Assessing Performance Outcomes in Marketing,” Journal of Marketing, 80 (2), 1–20.
41.
KirmaniAmnaRaoAkshay R. (2000), “No Pain, No Gain: A Critical Review of the Literature on Signaling Unobservable Product Quality,” Journal of Marketing, 64 (2), 66–79.
42.
KnightJohn G.HoldsworthDavid K.MatherDamien W. (2007), “Country-of-Origin and Choice of Food Imports: An In-Depth Study of European Distribution Channel Gatekeepers,” Journal of International Business Studies, 38 (1), 107–25.
43.
MacielAndre F.FischerEileen (2020), “Collaborative Market Driving: How Peer Firms Can Develop Markets Through Collective Action,” Journal of Marketing, 84 (5), 41–59.
44.
MasseyPatrick (2000), “Market Definition and Market Power in Competition Analysis: Some Practical Issues,” Economic and Social Review, 31 (4), 309–28.
PetersRyan H.TaylorLucian A. (2017), “Intangible Capital and the Investment-q Relation,” Journal of Financial Economics, 123 (2), 251–72.
49.
PorterMichael E. (1996), “What Is Strategy?” Harvard Business Review (November/December), 2–19.
50.
PosnerRichard A. (1979), “The Chicago School of Antitrust Analysis,” University of Pennsylvania Law Review, 127 (4), 925–48.
51.
PreacherKristopher J.RuckerDerek D.HayesAndrew F. (2007), “Addressing Moderated Mediation Hypotheses: Theory, Methods, and Prescriptions,” Multivariate Behavioral Research, 42 (1), 185–227.
52.
RaoAkshay R.MonroeKent B. (1989), “The Effect of Price, Brand Name, and Store Name on Buyers’ Perceptions of Product Quality: An Integrative Review,” Journal of Marketing Research, 26 (3), 351–57.
53.
RegoLopo L.MorganNeil A.FornellClaes (2013), “Reexamining the Market Share–Customer Satisfaction Relationship,” Journal of Marketing, 77 (5), 1–20.
54.
RepenningNelson P.StermanJohn D. (2002), “Capability Traps and Self-Confirming Attribution Errors in the Dynamics of Process Improvement,” Administrative Science Quarterly, 47 (2), 265–95.
55.
RichardsonJames (1993), “Parallel Sourcing and Supplier Performance in the Japanese Automobile Industry,” Strategic Management Journal, 14 (5), 339–50.
56.
RomanelliElaine (1989), “Environments and Strategies of Organization Start-Up: Effects on Early Survival,” Administrative Science Quarterly, 34 (3), 369–87.
ShiMengtze (2013), “A Theoretical Analysis of Endogenous and Exogenous Switching Costs,” Quantitative Marketing and Economics, 11 (2), 205–30.
59.
ShyOz (1995). Industrial Organization: Theory and Applications. Boston: MIT Press.
60.
SnyderScott Andrew (2008), “System and Method for Assisting Customers in Choosing a Bundled Set of Commodities using Customer Preferences,” U.S. Patent 7,430,531.
61.
TeasR. KennethAgarwalSanjeev (2000), “The Effects of Extrinsic Product Cues on Consumers’ Perceptions of Quality, Sacrifice, and Value,” Journal of the Academy of Marketing Science, 28 (2), 278–90.
62.
UslayCanAyca AltintigZ.WinsorRobert D. (2010), “An Empirical Examination of the ‘Rule of Three’: Strategy Implications for Top Management, Marketers, and Investors,” Journal of Marketing, 74 (2), 20–39.
63.
VaradarajanRajan (2020), “Customer Information Resources Advantage, Marketing Strategy and Business Performance: A Market Resources Based View,” Industrial Marketing Management, 89, 89–97.
64.
WetzelHaukeHattulaStefanHammerschmidtMaikvan HeerdeHarald J. (2018), “Building and Leveraging Brand Equity: Evidence from 50 Years of German Professional Soccer,” Journal of the Academy of Marketing Science, 46 (4), 591–61.
65.
WooldridgeJeffrey (2015), Introductory Econometrics: A Modern Approach. Scarborough, ON: Nelson Education.
66.
Yli-RenkoHelenaAutioErkkoSapienzaHarry J. (2001), “Social Capital, Knowledge Acquisition, and Knowledge Exploitation in Young Technology-Based Firms,” Strategic Management Journal, 22 (6/7), 587–613.
67.
ZacharyMiles A.McKennyAaron F.ShortJeremy C.DavisKelly M.WuDi (2011), “Franchise Branding: An Organizational Identity Perspective,” Journal of the Academy of Marketing Science, 39 (4), 629–45.
68.
ZeithamlValerie A.BitnerMary J.GremlerDwayne D. (1996), Services Marketing. New York: McGraw Hill.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
