It seems intuitive to believe that growing the market share your product or service enjoys will benefit the financial performance of your company.  Indeed, it’s sufficiently intuitive as to become a truism without really ever being critically analyzed.

That is precisely what a recent study from the University of Cologne attempted to do however, and they found that a number of factors are more important to the overall financial health of a company than market share.  Indeed, a more effective strategy than chasing market share is to invest in building strong customer relationships and exceptional branding.

Supporting financial growth

The findings emerged from an analysis of 89 published studies from around the world, which collectively examined market performance between 1972 and 2017.  It found that a 1% growth in market share only translated into 0.13% growth in financial performance, with other factors, such as customer satisfaction and brand equity far more influential.

For instance, stronger customer relationships were found to deliver six times stronger financial performance, whilst better branding was three times as effective as market share gains alone.

“Many CEOs still consider market share to be the most important indicator of business success,” the authors explain. “But in today’s digital market, small companies can often produce cost-effectively and sell to a global audience. That allows them to compete with the industry’s leading companies.”

The researchers believe their findings should prompt companies to allocate their budgets according to the areas that will deliver the biggest impact, rather than areas such as boosting market share, which has a negligible impact.  Instead, improvements in customer service and branding are likely to pay richer dividends.