The Battle to Retain Market Leadership
Companies that lose the number one spot don’t have long to get back on top.(originally published by Booz & Company)
Title: Long-Term Market Leadership Persistence: Baselines, Economic Conditions, and Category Types
Authors: Peter N. Golder (Dartmouth College), Julie R. Irwin (University of Texas at Austin), and Debanjan Mitra (University of Florida)
Publisher: Marketing Science Institute, Working Paper No. 13-110
Date Published: April 2013
Becoming the market leader is a key strategic goal for many firms, and it has fueled plenty of prominent corporate rivalries—think Coke versus Pepsi or Apple versus Microsoft. The benefits are obvious: Brands with the largest market share tend to have lower advertising and production costs, a broader and more loyal customer base, and enough popularity to counter their competitors’ moves.
This paper, which builds on an earlier study on this topic by the same authors, explores the changing fortunes of market leaders over nearly 90 years. The most eye-opening observation: When brands lose their leading status, they typically have a very limited time in which to reclaim it.
The authors combed through archival records and media reports to construct a massive data set that tracks market-share leaders in 125 consumer product categories from 1921 to 2010. They measured market leadership in 1921, 1962, 1982, 1995, 2000, 2005, and 2010, and dropped product types that declined dramatically in popularity, such as typewriters and fountain pens. (The seven dates in the time frame were chosen for a variety of reasons, and to ensure newer product categories were also included.) And to reflect changing consumer trends, the authors included nearly 50 categories of technology-based products that have emerged in recent decades. To evaluate the economic conditions in different eras, the authors also obtained data on GDP growth rate, inflation, and unemployment from the Federal Reserve Bank of St. Louis and the Bureau of Economic Analysis of the U.S. Department of Commerce.
In the first phase of their study, the authors identified “leadership intervals”—the periods between one date and another in their time frame—for the different product categories. In 66 percent of the cases, the company that was the leader at the first point was also the leader at the next point; for example, Chevrolet was the top car brand in 1962 and also in 1982. In about 30 percent of the cases, the leader was replaced by a different company. A former leader reclaimed the mantle in only 4 percent of the cases studied.
But when the authors looked closer, they found that the shorter-term struggle to keep the top spot was much more turbulent.
In that second phase of the study, they analyzed the quarterly periods from 2003 to 2008. By focusing on these shorter periods, instead of multiyear intervals, the authors found that hundreds of companies had temporarily lost the top spot but quickly regained it. The sobering conclusion of the study was that the window for reclaiming the leadership role was narrow; fewer and fewer companies were able to get back on top after just three quarters below the top. Specifically, 1,004 companies in the sample regained their leadership within three quarters. In the next 13 quarters, however, a total of only 219 companies got back on top. And only four companies made it back over the 17th and 18th quarters.
And because losing the top spot doesn’t necessarily mean a company will settle into a close second, the stakes for ceding first place are high, the authors note. The gap in market share between the number one and number two brands, on average, was more than 10 percent. Despite the high-profile cola wars or the long-simmering rivalry between Chevrolet and Ford, most categories feature a standout first-place brand with a group of smaller competitors trailing behind.
Overall, the authors write, the risk that former front-runners will fail to regain their footing “reinforces companies’ belief in the importance of market share leadership and justifies their efforts to achieve and maintain it.”
Among the other benefits they enjoy, brand leaders—which generally charge higher prices for higher quality—tend to do better than their competitors during economic downturns, the authors found. Conventional wisdom holds that cash-strapped consumers will switch to generic or low-cost alternatives when the economy slumps. But the authors argue that the higher profit margins associated with market supremacy give leaders a cushion when sales decline. And when times are tight, consumers may be less willing to risk spending on an unknown commodity, instead betting they’ll get their money’s worth from a leading brand.
Considering how much is at stake, and given that their analysis suggests that market leadership has become more difficult to sustain in recent years, the authors advise managers to fight even harder than before to win and defend the top spot.
The authors do concede that many of the elements that affect brand leadership, such as economic conditions and category types, are outside managers’ control. But managers do have options, and they shouldn’t wait to feel a competitor breathing down their neck to make the investments and allocate the resources that are necessary to stay on top.
When market leaders lose their perch, they typically have a very short time in which to regain it, adding to the pressure on managers to ward off challengers.
- Matt Palmquist is a freelance journalist based in Oakland, Calif.