Techniques for Businesses with a Large Market Share

Growing numbers of business theorists and practitioners have hypothesized in recent years that expanding a company's market share is one method for it to enhance its return, and studies seem to have validated this association. However, the writers of this piece reject the sweeping assumption that "more" inevitably translates to "better." They point out that having a big market share can mean both more difficulties and more profit for a business; a project that promises better returns than others will undoubtedly also come with higher risks. Companies would do well to handle their market shares with the same attention to detail as they would any other aspect of their organization, considering the clear correlation between profit and risk. There are some fascinating possibilities that arise from this idea of managing market shares. While most businesses might benefit from trying to capture more market share, some might come to the conclusion that they have reached—or perhaps exceeded—the point where anticipated expenses and risks exceed anticipated profits. The authors offer a number of approaches that these businesses could take into account while trying to control their market shares.

Gaining a dominant position in a market is probably going to result in the largest earnings of all the businesses involved.1. It may also imply gaining the notoriety, authority, and leadership that come with such supremacy.

But there are drawbacks to having a large market share. Businesses that have it are attractive targets for government authorities, consumer advocacy groups, and current and prospective rivals. Examples of companies that demonstrate this include IBM, Gillette, Eastman Kodak, Procter & Gamble, Xerox, General Motors, Campbell's, Coca-Cola, Kellogg, and Caterpillar. Their market shares have been both a boon and a bane; the latter comes with the responsibility of making far more careful decisions and overseeing their operations than their rivals. These businesses are prohibited from actively pursuing bigger shares since any additional profits could breach the barrier and invite antitrust litigation. To stop the trend, these corporations might even need to give up a portion of their shares in certain situations.

A corporation that gains a significant portion of the market is subject to several hazards that its smaller rivals do not face. High-share corporations are more likely to face specific measures from competitors, customers, and government agencies than from small-share enterprises.

For example, smaller rivals can launch specific kinds of attacks against larger corporations that wouldn't be as effective against similar-sized or smaller businesses. To show that the bigger rival broke antitrust rules in gaining its hegemonic share, one kind of response has been to file private antitrust lawsuits. A court recently ordered IBM to pay Telex $259.5 million in one of these lawsuits; however, an appeals court later overturned this decision. Xerox, General Foods, Anheuser-Busch, Gillette, Eastman Kodak, and Anheuser-Busch are presently facing additional private antitrust actions.2. Comparative advertising is used in another kind of attack. Advertisers such as B.F. Goodrich, Seven-Up, and Avis have discovered that it is advantageous to highlight or depict the products of their major rivals in their campaigns, while simultaneously implying that their own products are superior.

Prospective rivals pose additional challenges since they might believe that the firm holding the highest share is the sole one preventing them from sharing in the profits made in a specific sector. It is evident that a few sizable multiproduct corporations have had great success breaking into profitable industries that were formerly controlled by one or a small number of enterprises. For instance, Procter & Gamble has made notable forays into a number of industries, including those for toilet paper, tampons, deodorant sprays, and potato chips.

Consumer or public interest groups represent still another risk. A larger market share typically translates into increased public awareness; consumer advocacy groups may decide to focus their complaints, protests, and legal actions on the more visible corporations. Campaign GM was a proxy war against the biggest and most well-known automaker, with the goal of forcing General Motors to adopt a variety of policies that were thought to be in the best interests of the public. In a similar vein, SOUP, or Students Opposed to Unfair Practices, was founded in opposition to the purported use of dishonest tactics in Campbell Soup's advertisements. Campbell Soup is the industry leader in soup sales. Consumer or public interest groups have singled out three additional prominent market-share companies: DuPont, First National City Bank of New York, and Eastman Kodak. Undoubtedly, a consumer group's attack can harm the organization's reputation and put it in expensive legal hot water.

The large market share corporation must also deal with government antitrust actions. The Federal Trade Commission and the Department of Justice are emphasizing the "structural" aspects of markets once again. These agencies have acted due mainly to the purported existence of noncompetitive market structures, rather than waiting for concrete proof that behavior within an industry has been anticompetitive (i.e., predatory or collusive).

The government has highlighted in recent lawsuits brought against IBM, Xerox, the eight largest oil firms, the four major cereal producers, and ReaLemon that these companies have such enormous market shares that their competitors have all but vanished. It may be argued that these businesses are currently being penalized for their achievements. In any event, they are all embroiled in costly legal disputes and could either be forced to disband or fundamentally change the way they conduct business.

Antitrust actions are likely to be filed against more high-market-share companies when the FTC starts enforcing its recently acquired ability to demand line-of-business data from large organizations. Multiproduct corporations will have a tougher time hiding their market domination when so much attention is focused on their day-to-day operations; yet, they can still mask their profitability by arbitrarily allocating fixed overhead. For many corporations with large market shares, increased enforcement of current antitrust rules in response to congressional efforts to combat inflation will be a major source of stress.

These hazards do come with two caveats, though:

1. The method by which the business attained its large market share determines the level of risk. If the company's success is dependent on ongoing innovation and/or reducing costs and prices for customers, then customers, the government, and rivals may feel less inclined to criticize it. These parties might be more likely to oppose it if its success depends on locking up a certain distribution channel, bundling services, or exploiting an expiring patent.

2. The other parties' resources determine the level of risk. For instance, competitors pose less of a risk if they are unable to finance counteradvertising campaigns or individual antitrust lawsuits. If the social context has shifted from one of broad company criticism to one of more conventional acceptance of business activities, there is not a great chance of consumer and government action.

Sadly, there hasn't been much talk about the high market share company's share management issues or the steps it should take to address them. There has been a lot written about how a business should grow its market share, but not as much about what it should do once it has a sizable share.