Monday, April 6, 2009

Profit vs Market Share

And the debate continues....

I have  friends who work across various industries-FMCG, Retail, Telecom, Technology, Financial Services etc. We meet-up quite regularly and I often end up asking them a naive' question: So how is the company doing?

And invariably their answer is: "Great! we have the largest market share in this product category";" My territory market share has gone up by x% "; " Oh! We are feeling some pressure, our market share is falling".

Does this sounds familiar? , almost everyone seems to be talking about 'Market-Share', but very few talk about 'profitability'. So let me share my perspective on the same…

Market-share is a short term perspective, while Profitability is a long term perspective. It is easy to sacrifice profit under misplaced exuberance to achieve market-share. This is/was very much happening around us (in India) as I write…. Airlines 'burning' cash faster than they can burn fuel,Retail players risking their balance-sheets by getting into ‘leveraged expansion’ , Financial services companies (consumer-loans , credit-cards, Insurance) completely distorting their ‘cost structures’ to acquire maximum number of customers(market-share), irrespective of whether it makes any economic sense for the business or not.

Market-share is or should be a consequence. It is the result of doing the right thing. Market share is result of attractive products, excellent processes, customer service, and other structural strengths of the company. The focus should be on ‘profitable growth’. When a business is not profitable, it is a serious sign that something is not right.

Profitability gives the freedom to invest in opportunities for the future, to develop new products, to attract, retain, train and reward the best talent.

As some wise guy said “ The worst crime against working people is a company which fails to operate at a profit"

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