Why Is High Market Share Good?

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High market share demonstrates that a company has got its marketing right by offering customers a product that meets or exceeds their requirements. It may also give a company the opportunity to control developments in a marketplace -- a factor known as market power. Companies with high market share can create barriers to entry that maintain their position. Market leaders also attract investors and build confidence in prospective customers. By building a strong customer base, companies with high market share create a good foundation for launching new products to sustain their position for the long term.

Marketing

  • Marketing is the process of meeting customer needs effectively, so companies that provide customers with the right product at the right price can increase market share. In a competitive marketplace, companies must also get other elements of their marketing, such as advertising, distribution and sales, right to stay ahead of competitors. According to the Harvard Business Review, a company with a high market share is a tempting target for actual and potential competitors. The drive to improve and sustain market share is therefore an incentive to improve marketing efficiency and effectiveness.

Barriers

  • A company with high market share can create barriers to entry, making it difficult for competitors to build their own share. A competitor would have to make a major investment in marketing to overcome the barrier, giving the market leader a strong advantage. Although high market share is a benefit to the market leader, it may also attract the attention of regulators concerned about lack of choice for customers. The company runs the risk of facing anti-trust legislation.

New Products

  • A company with a large customer base can sustain its market position by developing new products that continue to meet its customers' requirements. Companies in the information technology sector refer to their customer base as an installed base. Companies can then offer upgrades to customers who have existing products installed. The cost of switching and retraining employees in a new product means that customers are usually reluctant to move to a new supplier, according to the Massachusetts Institute of Technology.

Confidence

  • A company that achieves high market share through quality products builds a reputation that can prove valuable in winning new customers. In the consumer sector, the company can achieve high distribution because retailers prefer to stock products that have high demand. In the business-to-business sector, corporate reputation can be an important factor in purchasing decisions. Organizations reduce risk by buying from companies with a reputation for quality and reliable delivery. High market share also builds confidence in investors. Market leaders find it easier to attract funds so that they can make further investments to sustain their advantage

References

  • Photo Credit Hemera Technologies/AbleStock.com/Getty Images
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