Key Points
While conventionally market share drives profitability due to economies of scale, bargaining power, or more favorable brand perceptions, a new research says the link between market share and profitability may get weakened for digitalised companies..
While the researchers studied over 6,000 cases from around 800 US companies across various sectors, the learnings can carry a message for FMCG companies too which are digitalising or their digital-only smaller peers as India's retail market is set to grow phenomenally on the back of rising trend of e-commerce...
The research says digital transformation may lower the importance of market share, for example, by decreasing online distribution costs that enable firms with smaller market shares to compete more profitably and reduce the efficiency advantage of larger firms..
The weakened link between market share and profitability in digitalised companies as shown by the research poses a challenge to legacy companies which have cornered large market shares and have thrived due to their dominance and market power...
While market share has been a signal of quality and a barrier to market entry for smaller players, the research says the digital age can erode the dominance of big players. "Digitalization is diminishing the power of the market leaders; customers can compare prices quickly and easily online, for example.".
