Chris A Watkins

Acquiring Market Share. MD, MD, how does your business grow?

Cutting margins and pricing aggressively will probably return a broader customer base. But profitability will suffer. One thing is certain. You must not allow quality to fall.

Gaining an increase in market share may become necessary for a number of reasons. You may need to shift focus from one product line to another in the face of a declining market, you may wish to expand to fend off a market place squeeze or you may just be growing towards your planned capacity. Whatever the reason, you will need to form an acquisition strategy.

There are three ways to obtain an increase in market share –

1. Earn it.
2. Use competitive trading to buy it.
3. Acquire a competitor.

Each of the three approaches bring along its own strategy requirements and its own issues. Selecting the best approach depends entirely on circumstance.

Outperform the competition.

Earning market share by supplying a better product, better service, better support, better delivery is an honorable way of expanding a customer base. It is steady, progressive and undemanding in that production/purchasing is not subject to stresses caused by sudden up-shifts in supply/delivery.

Even so, there are issues. Attaining greater market share in this way takes time. Customers need to be won over and quality must never falter. Poor feedback on product, support or delivery from the market can seriously slow your expansion program.

Your competitors aren’t going to sit back and let it happen either. You will need to respond to continual strategy changes from the opposition that may include –

1.      Aggressive pricing.

2.      Customer loyalty rewards.

3.      Improvement in their product/delivery/service.

You will need to cope with these attacks quickly as each arises in order to maintain market position and momentum. This will be expensive.

Buy market share with aggressive marketing.

Cutting your margins and pricing aggressively will probably return a broader customer base. Turnover will almost certainly rise, but profitability will suffer. One thing is certain. You must not allow quality to fall.

The sums must be right before you embark on this type of strategy. If you can reliably source raw materials at a much lower price, or if your production/value adding processes are very much more efficient than your competitors, it becomes a safe bet. Don’t, however, be lulled into the belief that competitors are incapable of tighten up their act. Your advantage may only be short lived.

In addition to efficiency improvements you may expect competitors to hit back with their own aggressive pricing and customer rewarding tactics.

Outright acquisition.

A strategy of outright acquisition is expensive in the short term, but every gain you make adds to your market share. If you handle the process well you keep the customer loyalty that went to the original supplier. That may well equate to the final cost being much lower than an aggressive marketing approach.

Acquisition needs thorough planning. You will need to carry out –

1. In depth market research on the target.You need to know that their customer base is as good as they say it is.
2. Due diligence.You need to know that the target is trading to the level claimed. If you are buying market share you won’t be too concerned about their product cost, but you will be interested in how much they spend to service their customers. Loyalty can die quickly in the face of perceived reduction customer support levels.

For a growing business, acquisition strategy may be the best way forward, but the planning must be extensive.

Sources –

http://www.b2binternational.com/acquisition%20research.html

http://www.b2binternational.com/whitepapers7.html

http://www.b2binternational.com/aquisitionresearchcasestduy.html

http://ideas.repec.org/a/bep/rlecon/2200611.html

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Article Tags: Market Share, Customer Base

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