When companies benefit from market share gain

  by Nigel Hollis

So last week I posted about portfolio momentum as described in “The Granularity Of Growth” and mentioned that share gain only accounted for a measly four per cent of compound revenue growth for large companies across a five year time frame. But why is that, and when do companies benefit from share growth?

One of the reasons that share gain was found not to account for more revenue growth is a function of the time frame used. A company may make share gains in a category, but then the competition fights back and the share gain is erased. As suggested in this post, a large part of the marketing job is to hold onto share gains once they are achieved. The Granularity of Growth analysis found share gain made up 26 per cent of differences in growth performance across an average year.

“The Granularity of Growth” reports that only about one in ten companies achieved substantial share gain. For these winners share gain made up 6 to 20 per cent of annual revenue growth. Looking at the causes for success finds that those of you who think growing salience is the key to brand growth better think again. Referencing the top 15 share gainers the authors state,

“One thing stood out: they’ve all made good big choices – strong commitments to create distinctive (and possibly disruptive) business models – on the basis of insights or distinctive advantages.”

While I might have used the word “differentiating” rather than distinctive (see this Point of View about how the two qualities are different but complementary) this is very similar to what we see at a brand level. Well-differentiated brands tend to be the ones that grow faster over the longer-term, provided they can become meaningful and salient to new customers.

The big question for me is whether a distinctive advantage can be afforded by marketing alone or do brands need some structural advantage to ensure share gain? The examples cited in “The Granularity of Growth” focus on supply chain, specialty skills, affordable prices, cross-selling and new technology. But I would argue that Subaru managed to achieve sustained and profitable share growth without dramatic changes in its product line-up. Good marketing helped make sure that people were predisposed to choose a brand that stood out from the crowd. And when it comes to categories like beer marketing, it is one of the few growth levers available.