Beware the Reckless Drive for Market Share.
A firm can usually"buy" market share, if it is willing to sacrifice profits to do so It can step up advertising and sales promotions. It can reduce prices, assuming that lower prices would bring more demand. It can increase sales staff and motivate them to be more aggressive. Sales and competitive position then will usually rise. But costs may increase disproportionately. In other words, the benefits to be gained may not be worth the costs.As we saw, McDonald's aggressively increased market share in the mid-1990s by opening thousands of new restaurants. As long as developmental costs could be kept sufficiently low for these new units to be profitable and not cannibalize business from other McDonald's restaurants, then the strategy was defensible. But a hard look at the $4 to $5 billion in development costs without any consequent increase in profitability led to scrapping this strategy. And the costs of damaged franchisee relations due to cannibalizing resulted in lowered morale, cooperation, and festering resentments. Interestingly, this market share growth strategy was toned down by early 2000.
Beware the Reckless Drive for Market Share. A firm can usually"buy" market share, if it is willing to sacrifice profits to do so It can step up advertising and sales promotions. It can reduce prices, assuming that lower prices would bring more demand. It can increase sales staff and motivate them to be more aggressive. Sales and competitive position then will usually rise. But costs may increase disproportionately. In other words, the benefits to be gained may not be worth the costs.As we saw, McDonald's aggressively increased market share in the mid-1990s by opening thousands of new restaurants. As long as developmental costs could be kept sufficiently low for these new units to be profitable and not cannibalize business from other McDonald's restaurants, then the strategy was defensible. But a hard look at the $4 to $5 billion in development costs without any consequent increase in profitability led to scrapping this strategy. And the costs of damaged franchisee relations due to cannibalizing resulted in lowered morale, cooperation, and festering resentments. Interestingly, this market share growth strategy was toned down by early 2000.
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