Market standing has to be measured against the market potential and against the performance of suppliers of competing products or services â€“ whether competition is direct or indirect.
Some marketers express that they donâ€™t care what share of the market they have, as long as the sales go up. It sounds plausible enough; but it does not stand up under analysis, by itself, volume of sales tells little about performance results or the future of the business. A companyâ€™s sales may go up and the company may actually be headed for rapid collapse. A companyâ€™s sales may go down and the reasons may not be that its marketing is poor but that it is in a dying field and had better change fast.
A maker of oil refinery equipment reported rising sales year after year. Actually new refineries and their equipment were being supplied by the companyâ€™s competitors. But because the equipment it had supplied in the past was getting old and needed repairs, sales spurted; for replacement parts for equipment of this kind have usually to be bought from the original supplier. Sooner or later, however, the original customers were going to put in next and efficient equipment rather than patch up the old and obsolescent stuff. Then almost certainly they were going to go to the competitors designing and building the new equipment. The company thus threatened with going out of business which is what actually happened.
Not only are absolute sales figures meaningless alone, since they must be projected against actual and potential market trends but market standing itself has intrinsic importance. A business that supplies less than a certain share of the market becomes a marginal supplier. Its pricing becomes dependent on the decisions of the larger suppliers. In any business setback even in a slight one, it stands in danger of being squeezed out altogether. Competition becomes intense. Distributors in cutting back inventories tend to cut out slow moving merchandise. Customers tend to concentrate their purchases on the most popular products. And in a depression the sales volume of the marginal supplier may become too low to give the needed service. The point below which a supplier becomes marginal varies from industry to industry. It is different in different price classes within the same industry. It has marked regional variations. But to be a marginal producer is always dangerous, a minimum of market standing always desirable.
Conversely, there is a maximum market standing above which it may be unwise to go even if there were no anti-trust laws. Leadership that gives market dominance tends to lull the leader to sleep; monopolists have usually foundered on their own complacency rather than on public opposition. For market dominance creates tremendous internal resistance against any innovation and thus makes adaptation to change dangerously difficult. Also it almost always means that the enterprise has too many of its eggs in one basket and is too vulnerable to economic fluctuations There is, in other words, an upper as well as a lower margin, though for most businesses the perils of the former may appear a good deal more remote.
For example, all electric condensers may look the same technically and come off the same production line. Market wise condensers for new radios may be an entirely different line from condensers from radio repair and replacement, and both again quite different from the physically indistinguishable condensers that go into telephones. Condensers for radio may be different lines if customers in the south judge their value by their resistance to termites, and customers in the Northwest by their resistance to high humidity.
To be able to set market standing objectives, a business must first find out what its market is, who the customer is, where he is and what he buys, what he considers value, what his unsatisfied wants are. On the basis of this study the enterprise must analyze its products or services according to â€œlinesâ€ that is according to the wants of the customers they satisfy.