Back in 2007, Nokia was featured on the cover of a reputed global magazine as a company with an unbeatable market share in the mobile phone market. That was just before the first smart phone was launched by Apple. What happened in the next few years was absolutely unbelievable. Nokia refused to accept that smart phones could replace their clunky and sturdy mobile phones. But that is exactly what happened. Over the next 5 years, Nokia almost entirely lost the lucrative high-end mobile market to Apple and Samsung and later to Chinese entrants like Xiaomi. In fact, had the journalist writing the article spent the next few quarters looking at the growth in market share rather than the market share itself, then the article may not have appeared so ironic today.
Much closer home, we have the case of how Bajaj Auto lost out market share in the two-wheeler market to Hero Moto (then Hero Honda). For a long time after the entry of Hero Honda, Bajaj continued to dominate the two-wheeler market with the largest market share. But something was changing silently. People were jumping on to the more trendy motorbikes produced by Hero Honda. Also, the bikes were extremely fuel efficient and for the cost conscious Indian customer, it did make a lot of sense. Today Bajaj Auto is ranked fourth in the domestic market after Hero Moto, Honda and TVS Motors. Once again, it underscores the need to look at market share growth rather than just absolute market share. Let us understand the reasons why!
How we define the concept of markets is changing
Traditional definitions of the market are not exactly compatible with a fast-changing business environment. For example, in the past, the lines of competition were quite clear. But look at the case of Bajaj Auto. It would have been hard to imagine that the competition for scooters could come from motorbikes. But that is what happened. Similarly, today the challenge for the auto industry is not coming from car manufacturers but from companies like Tesla and even from Google, which is testing driverless cars. The software has actually started competing with the hardware.
Market share is a rear view approach to the market reality
When you are talking of market share, you are automatically taking a rear-mirror view. You are looking at what has happened. It does not give you an idea of how the industry structure is changing. For example, the biggest competition to traditional banking did not come from private banks but from technology. ATMs, online transfers, UPI, digital banking is changing the landscape substantially. The major growth is already coming for digital banks. That is what growth in market share can tell you. If you look at the growth in new bank accounts, increasingly people are opting for digital banking accounts.
Market share is not compatible with futuristic strategy
This is another important aspect about measuring market share. If you look at market share, it gives you an idea of what you have already achieved. When you look at growth in market share, you get an idea of whether you are gaining market share or you are losing market share. That is where strategy comes in. If your market is not growing or if your market share is growing at a slower rate, then you need to ask some serious questions. That will be able to point out the flaws in your current strategy and you can focus accordingly.
If you look back at case studies in the last 20 years, there are innumerable instances where a focus on market share has resulted in wrong strategies. Kodak focused on its traditional photography market share but lost out to digital photography in a big way. It just did not see the shift coming. Major book stores like Borders and Barnes & Nobles are also cases in point. When Amazon came into the online business, the traditional book sellers were literally swept aside by Amazon. Another instance is that of Blockbuster Entertainment which dominated the video rental space. When Netflix came in with its online video rental model, Blockbuster did not see the threat and eventually ended up filing for bankruptcy.
In the Indian context, the scale of disruption has not been so huge. But there are examples. Bajaj Auto losing out Hero Moto, MTNL losing out to mobile telephony and traditional banks losing out to technology are all examples where the businesses just did not see the trend coming. Had they focused on growth in market share rather than pure market share, they could have seen trouble coming much earlier.