What Happens to Market Share When Revenue is Unchanged?

What happens to your company’s market share when revenue is unchanged? Does the company’s market share remain the same or decline? I’m sure you can tell where I’m going with this. I bring this up because of an issue I’ve seen over and over again with respect to the companies I’ve worked with. Most measure market share without taking into consideration the market’s growth. In this case, to have revenue remain the same, from one year to the next, is seen as having the exact same market share. It isn’t! In fact, even though the company hasn’t lost any business, it has most definitely lost market share.

This is perhaps the biggest reason why companies lose their competitive edge. They forget to include the growth of their industry and market within their own market share calculation. This means that they equate stagnant sales to stagnant market position. To these companies, if they don’t lose any volume of business, then they must have at least retained their share of the market. They end up rationalizing that the leveling out of their sales means they’ve successfully maintained or defended their market position. Nothing could be more further from the truth. 

Understanding the Impact of Stagnant Business on Market Share 

To defend business means to retain business, but if that’s all your company has done over the year, then it’s a guarantee that you’ve lost your share of the market. When revenue is unchanged, in an industry that is growing, means the company has in essence lost a piece of the pie. It’s that simple. This is why a number of companies become complacent. They rationalize that stagnant business growth is to be expected from time to time.

As is often the case, this indifference creeps up on businesses until they find themselves in such a weakened position, that they fail to assert themselves and their product offering. So, how does stagnant business result in lost market share? More importantly, how does unchanged revenue affect the business until it eventually loses its market position? 

Why Companies Lose Their Competitive Edge

Let’s assume that your company is a key player in its market and has a relatively healthy market share. Over a couple of years, your business stagnates and its growth is minimal at best. Meanwhile, the industry itself has continued to grow at a steady rate. During this time, your competitor’s market share growth has been keeping pace with the industry’s growth. By this I mean that each year the industry grows, your competitor’s market share grows as well. What does your competitor’s growth mean relative to your company’s stagnant growth?

   

• Your Competition has Better Costs: Simply put, as your business has remained unchanged, so to has your purchasing power and economies of scale. Your prices for parts, materials and services may have declined somewhat, but it’s a guarantee that your competitor has a much stronger purchasing position and therefore, much lower costs. After all, growing market share means to grow business. More business means more purchasing power and the ability to drive down costs. Your competitor has this advantage, you don’t. 

• Your Competition is Faster to Market: Your competitor must be doing something right. Whatever it is they’re doing is working because as your business is losing market share, your competitor’s is increasing. This means they have a better understanding of the market and are better at product introduction, sales and marketing. They understand the market better than you do and ultimately, they do a better job capitalizing on what the market is telling them. They’re faster to market and the first company customers look to for new business contracts. 

• Your Competition is Respected for their Business Acumen: Maybe at one time your business was a dominant player, but no longer. While your business is unchanged, your competitor has continued to steal business. Customers now see your competitor as the market leader and your company as nothing more than a follower. While your company has been defending and defending, your competition has been charting a path to growth. Customers look to your competitors as their primary vendor of choice.  

 

A value chain analysis is a tool you can use to define your company's value assertion. It might just help put you on a level playing field with respect to your competitor's capabilities, while outlining some inherent flaws in your company's core competencies. 

Ultimately, stagnant business growth is market share lost, plain and simple. Now, most companies don’t take the time to truly investigate the ramifications of stagnant business. They simply assume that to retain the business they have is enough to retain their place in the market. What they fail to realize is that while they’ve accepted the "status quo," their competitor has continued to raise the bar on performance. 

If you want to read more about the importance of tracking the market’s growth within your own market share calculation, then please read: Importance of Forecasting Market Share in a Growing Market