Market-share Vs. Market-size: Which Way to Grow?

Which number is bigger?



I know — trick question.  Am I asking about value or font size?  I ask this because it is a cheap illustration for a very common mistake made by brand owners and retailers in a competitive industry.

The number one strategic error I see in product marketing at both the wholesale and retail levels is in the preferred method of growth.  With the caveat that there are those products and services that have a pre-determined number of customers and that cannot make new customers for various reasons, these are few and far between.  Most product industries want and have the potential to get more people into buying their product who have not bought-in before.  The problem is, decision-makers in these industries don’t act like it.

Industries that sell to enthusiasts for their products are particularly bad at this.  Why is it that every seller would rather steal the next sale by stealing an already existing customer from a competitor, vs. making a new customer that no one has?  Is this because it is somehow more satisfying to stick-it to one’s competitor?  That may be an element, but the better part of the answer is usually rooted in the fact that existing customers are who these sellers already understand, while the marketing required to get a new customer interested confounds them.

For some, they don’t know where to look for these new customers.  What customer demographics make for likely first-time entrants into your product?  What medium and method of marketing best intercepts and grabs their attention to ask them to consider you?  What does answering and acting upon these questions cost?  Oh, to heck with it, let’s just send another newsletter or advertise another sale to the customers we already know.

This results in spending all one’s marketing dollars in the same place that everyone else is, and everyone in an industry keeps shouting at, clamoring, and clawing to take customers back and forth from one another like a great tug of war where the rope is the limited dollars that this group of existing customers has to spend.

If you and a few competitors share 1000 customers and you expect to grow and keep the growth, how are you going to accomplish this without continuously trying to fend off someone else’s creative marketing genius to just take it right back from you?  Perhaps you should not ignore the 10,000 customers who no one is even talking to.  You could grow both the market and, by taking it all for yourself, your market share at the same time.

Now then, the next objection I often hear to someone I introduce this concept to is this: if I don’t keep up with my competitors’ efforts to take my existing customers, I’m going to lose customers to them.  Let me let you in on a little secret.  Let them.

Here’s the thing: as enthusiasts get more knowledgeable about a product, they also get more knowledgeable about who is selling what for how much.  You are already always going to lose to the lowest bidder, and the math never shows that small business owners (at least of the brick-and-mortar variety) can win at that bottom-feeding game.  Customer loyalty is unreliable no matter how much the customer already likes you and we can’t bury our heads in the sand and ignore that fact.  It’s one of the effects of marketplace commoditization that I warn about.

Enthusiasts are going to graduate away from you to the lowest possible bidder and I have succeeded in small business by letting this happen and going out to create new customers instead.  What is so great about these is that they need me, they don’t know enough to help themselves online yet, they don’t know who my industry’s bottom-feeders are, and they will be loyal for a while until they enter into that smaller pool of long-term enthusiasts.  Frankly, I don’t mind feeding enthusiasts up to my competitors because I am more profitable than they are with better margins, easier customers to deal with than know-it-all enthusiasts shaking me down on price, and get shown a lot more gratitude for helping the new customer with such great first-time experiences.

For brand owners, the concept is the same but with an added dimension.  Brands compete on quality of experience, not just price.  If a brand is excellent at making distinct products that separate them from the customer experiences provided by their competitors and protect that value, then they can keep their existing customers loyal to the brand.  But they still should focus on making new customers, not stealing them, because every new one they make sets a bar for that customer that, unless a competitor figures out a way to provide a better experience, makes it more likely that the brand can keep that new customer coming back for a very long time.

Food for thought.