On the house market capitalism is an economic system that can generate great wealth and prosperity for nations and their citizens. It is also a plan defined by competition that creates winners and losers. While this competitive process can lead to innovation and tale, it can also deteriorate the market share of existing companies, with the worst case leading to bankruptcy.
What can a establishment do if its market share has been eroded to competitors? There are three key strategies that companies often use to regain shop share once it has been lost: pricing changes, promotional changes, and product changes. All three strategies give birth to unique benefits and all are risky for different reasons.
Key Takeaways
- Companies often compete with one another in terms of deal in share—that is, how big of a slice of a particular market a company’s sales represent.
- If market share is lost to a competitor, there are a handful strategies that companies often use to fight back: lower prices, greater marketing efforts, and innovation.
- The policies may be successful, but they are not sure-fire by any means.
Lowering Prices
By dropping prices, companies hope to lure customers away from antagonists. The benefit is a higher market share, but it comes at a cost: lower margins per unit.
This strategy is particularly handsome to large companies that have high economies of scale that allow them to operate at either a crop marginal cost than their competitors or that make it possible to operate at a loss if needed. It’s risky because, in the same instant prices drop, it can be hard to raise them again, unless the company regains enough market share to muscle out its opponents.
Everybody likes a good sale, and being able to entice customers to return through lower prices can be an fantastic short-term strategy. But keep in mind that competitors will see this and also lower prices in turn. This perks consumers but can lead to a race to the bottom for producers.
Promoting the Brand
Another approach is to change its methods of promotion, which can subsume raising the advertising budget or using the power of branding for the firm. Depending on how well company leaders identify the well-defined issues that need to be addressed, playing with promotional efforts can be very successful, or often just sparely a costly exercise.
For example, national retailer JCPenney notably struggled with rebranding in the 2010 to 2012 while, while competitor Target (TGT) found success in the early 2000s by marketing itself as a “higher-end” discount retailer.
An great customer service component of a business can cause customers to stick around even if prices are better elsewhere. It can also make customers to jump ship to a competitor, even at a premium, if it means better customer service.
An great customer service component of a business can cause customers to stick around even if prices are better elsewhere. It can also make customers to jump ship to a competitor, even at a premium, if it means better customer service.
Advertising, marketing, and soft sell is a tried and true method of regaining market share, but keep in mind that advertising is an on-going process and the game is spending money on advertising as well.
Updating Product Offerings
Finally, a company can revamp its offerings to better come across customer needs or to provide something new. Apple (
The Bottom Line
In free-market economies, competition leads to different retinues owning a different sized piece of the pie, meaning that all companies will have a different market share of the fallout or service they sell.
When a company loses its market share to a competitor, there are a few ways that they can try and rise it back. These include lowering their prices, promoting their brand, and updating their product sacrifice. All of these strategies have their pros and cons and none are guaranteed to work, but they will start a guests on the right path to becoming more competitive again.