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Understanding one’s market share, represented by the ratio between a company’s total sales and the total sales of its industry, can be elusive but essential.

Monopoly, oligopoly, perfect competition and monopolistic competition are familiar market structures that can describe the market share characteristics of any industry, and provide insight into which market share expansion strategies will be effective.

A regulated monopoly has a market share of 100 percent. Monopolists need only to use census counts and demographic research to expand their markets during times of general growth. They use marketing the political process and the judicial system to ensure their market share does not decline.

In competitive markets, the calculation and the guardianship of market share are more complicated.

An oligopoly exists when only three or four competitors control most of the marketplace. For example, in the present telecommunications market, about four-fifths of U.S. long-distance revenue goes to three service providers: AT&T Corp. (, WorldCom Inc. ( and Sprint Corp. ( The rest is divided among tens of thousands of others.

Similar imbalances exist in other segments of the telecommunications industry, such as wireless, where the need for and the high cost of licenses limit the number of branded market players.

Market leaders in oligopolies so far have used acquisitions as their primary way to make significant improvements in market share. They need to strike a delicate balance between market leadership and antitrust avoidance, as WorldCom discovered when regulators thwarted its bid to acquire Sprint.

A market in perfect competition has so many players that no service provider can influence pricing. Monopolistic competition is similar. But a service provider within monopolistic competition can command a price premium and higher profitability in its own market niche.

Service providers in markets of perfect competition can realign their strategies to a monopolistic competition structure in order to gain the advantages of service differentiation.

In either case, market share for any individual service provider is quite small, so even measuring one’s own market share is a challenge.

For service providers in these structures and including those that are not industry leaders in an oligopoly–the market share equation can yield a paltry ratio, with too many zeroes after the decimal point and too few before it.

Moreover, the high churn experienced in most telecommunications market segments complicates the measurement of market share as it redistributes the customer base among the competitive service providers.

Managing share is frustrating if not impossible when share is below 1 percent and the margin of error is several multiples of that. Still, small service providers can increase their shares through higher-than-industry growth, mergers with equals or customer retention.

Leadership Pros & Cons

Market leaders find it easier than their challengers to draw new customers and investors. They also command higher prices than their competitors.

When examining the telecommunications market, we notice it is moving toward specialization, while geographical boundaries dissolve. Leadership through simple magnitude in the global telecommunications services industry would be impossible for any one company to achieve, and would offer a likely antitrust target to regulators in the United States and European Union.

Recent initiatives by the three U.S. long-distance leaders and British Telecommunications plc ( have suggested that the once-sought critical mass is probably smaller, not larger, than their current company size or scope.

Alternatively, the restructures that are taking place might demonstrate that focus, rather than magnitude, is the key to competitive success.

A market leader in a small segment will fare better than an also-ran in a more generalized marketplace.

Still, industry leaders, especially former monopolists, often find that it is difficult to downscale market share expectations. Look at the mission statements for many of them, and you will find phrases like “foremost provider,” “market leadership” and “the world’s best,” combined with “full-service solutions” and “one-stop provider.”

In other words, the claim is that they can be everything to everyone. The result of this bravado is that all but one leader will miss their most fundamental objectives as described in their mission statements.

Large service providers need to create market targets that concentrate on their strengths, while they remain willing to cede other segments to their competitors. The winners won’t always be the other industry giants; they will be superior niche performers or smaller companies that draw customers with their own differentiating factors.

To set goals for and then to manage market share, small and medium-sized service providers need to establish a foundation for market share analysis that is more measurable than using the overall marketplace as a denominator.

When overall market share is in single percentages or even tenths of percents, meaningful trends and market positions are difficult to calculate. Market share changes remain in an exaggerated motion through fluctuations in one’s own customer base, small shifts in share for competitors and the overall size of the market with allowances for mathematical error.

To address this management information gap, small service providers need to delineate their market with clear boundaries among geography, customer groups and telecommunications solutions that may be included in the business scope.

For service providers, narrowing the strategic focus will improve the appearance and the management value of market share calculations immediately. Containing business scope also offers an opportunity to increase profitability, improve brand recognition, and gain eventual market leadership.

The telecommunications market and its product or its customer submarkets is not monolithic. Why treat it that way?

Because market share involves a numerator and a denominator, significant and unanswered changes in either element are critical. Revenue growth looks great at 25 percent, but alarms should sound if that growth occurs in a market growing at 40 percent.

Market share will appear to have healthy growth when the industry declines and companies are shutting down. Similarly, focusing too narrowly on boosting share undermines the strategic planning process. Not all market share expansion strategies are wise. Slashing prices in the hopes of increasing share works in certain situations and reduces everyone’s revenues in others. In some markets, expanding market share can diminish the brand’s perceived quality.

Building Market Share

Telecommunications service providers can increase market share in three ways. The first is to take customers away from competitors. This increases one’s own share and reduces the share of each competitor, assuming they aren’t taking as many customers from you as you are from them.

The most effective method to attract customers from competitors is through branding and service differentiation, not through promotions or price cutting. A price reduction not based on a service provider’s low cost structure will invite a price war, which in turn reduces everyone’s revenues.

Promotions tend to attract the least loyal customers. Once customers have exhausted the benefits of the promotion, they look for other promotional offers. This creates cost and churn, and erodes market share in the long run. Promotions also encourage competitors to match prices or benefits, which adds to industry costs without a commensurate boost to revenues. If promotions to new customers are publicized well, they can backfire with loyal customers who rightly complain that they did not receive the same promotional benefits. Matching the benefits to existing customers reduces profits and can displease your most faithful and profitable base.

Second, the service provider who manages its own churn, with or without causing churn to competitors, will enjoy market share growth as its competitors’ customers rotate among them. Churn in most telecommunications markets ranges from 20 percent to 40 percent. The telecommunications provider that keeps just 5 percent more customers than its competitors has the equivalent of a 5 percent growth rate adding to its customer base and its eventual market share.

A Strategis Group ( study shows that wireless users planning to churn will do so for a lower price and to obtain number portability. Therefore, customers will churn just to churn more easily.

Regulatory initiatives, competitive entry into local markets and technology undoubtedly will make churning easier in the future.

Service providers who conduct a critical analysis of their customers’ service experiences will need to gain insight into why customers enter relationships with the intention of leaving.

Third, the service provider can buy market share through mergers and acquisitions. Before deciding to do this, the service provider must determine that increased market share is necessary within its current market structure. If a service provider holds even a 25 percent share in a perfectly competitive market that is highly fragmented, its next largest competitor might only have a 5 percent to 10 percent share. Market share of 25 percent can be enough to offer the service provider the advantages of leadership, such as pricing premiums, branding and a proportionate share of revenues in a growing market segment.

Suppose that service provider is tempted to buy more market share through an expensive acquisition. The transaction likely will avoid antitrust scrutiny, but a large premium could diminish its profitability without offering the synergy that is often announced and less frequently achieved.

Telecommunications service providers need to monitor and manage their market share positions as vigilantly as they do their financial and operational situations. Managing market share takes commitment and sometimes investment, and could require the development of computational tools or even a reassessment of the company’s strategy. But a service provider can’t get where it wants to be unless it is sure where it is.