Maximising Market Share Rather Than Shareholder Value

Maximising market share rather than shareholder value may be a critical decision for management, but the right one in the long run. Do you agree or disagree with this statement?

Market share is the term used for the dominance of the company in the market, or simply the size of the customer base. Some companies have small base in the regional markets, while some are international. In either case the importance of retaining the market cannot be overstated. The loss of customers would immediately translate to loss for the company and thus it will be driven out of the market. So market share is the basis for the company's profit and enhancing value. While the stock holders and share holders and those having interest in the company have priority in protecting their assets and stake in the company -- the question if market share or stake holder value is to be seen as the basis for value addition - has a very clear answer.

Shareholder Value: The Concept and its Importance

The question is why is the stake holder interest is being considered at all? If the definition of profits and value is based on the sale, or better the cost effective sale to a greater market, then the consideration must be for the market. But the value of the stake holder becomes important in answering the question - for whom the company's efforts must be? The common answer is to build shareholder's wealth. In management practices then the correct thing to do is to assign financial goals that will be the aspirations of the shareholders; In other words, achieve financially what the share holders invested in the company for. No doubt the aggregated value of the company is important to the capital market. One of the greater criteria for the measure of progress is the future cash flows. The company's worth being increased in the financial market is a sound move because the capital market will decide on the liquidity of the company. Therefore to increase shareholders dividends and ensure higher stock exchange prices for the shareholders is said to be the major aim of existence of the company. (Schuster, 2000, p. 55)

But is that the real role of the company? In the modern times it is the customers, suppliers, banks, Unions, and the Governments that play a major role in the company policy. The argument that shareholder value must alone be the criteria of a management policy is wrong. While the shareholders are also part of the stakeholder groups, and have the common interest, they are thus not distinguishable. Therefore, the definition of a shareholder must necessarily include the stake holders too and this would thus include the other elements, as they are also stake holders. (Schuster, 2000, p. 56)

If we include these parties also as stake holders as distinct from shareholders, then the management must align itself to generation of value that can satisfy all the stake holders. Then the definition of such value is important. The answer to it is that the value of the company increases with the increase in its revenue. Marketing comes in at this juncture and the real shareholder -- or the stock holder wealth can be increased only by earnings, that are a substantial increase in the revenue as against the outgoings, and in other words the system has to have a higher inbound cash flow which can be shown as the asset of the company. The residual income thus is the basis of increasing the value of any institution, and even individuals for that matter. (Ward, 2004, p. 3) For all that, getting the bigger market share is the solution.

Market Share -- The Need to Survive:

Companies cannot hope to survive with the generated capital and the investment of the stake holders must positively add value. (McNutt, 2010, p. 45) This brings in the market, because a business cannot survive and its purpose of existence both is related to the market. For example, after globalization the market share losses have become huge with overseas competition. Thus to regain lost market shares, firms thus have to improve on the product, delivery and marketing and thus it also extends to having an 'information edge' over the competition. World-wide there is a scramble -- not to enhance stock value but to gain market share. (Reddy, 1994, p. 1)

Competitive strategy is important from the view of industrial organization and it is important for business strategies of firms to adjust to the ever-evolving situations. (Besanko; Dranove; et. al, 2009, p. 27) Delivering differentiated and new values to the customers and the market especially for selected customer groups in the market is the latest strategy to remain the market leaders which translates to further expansion and gains. (Treacy; Wierseman, 1997, p. 11)