Market share An ongoing study of 57 companies reveals a link a key to between roi and market share the bigger the better profitability Robert D Buzzell, Bradley T. Gale, and Ralph G.M. Sultan The March-April 1974 issue for businesses selling It is now widely recognized that one of the main of HBR carried an article products that are pur. determinants of business profitability is market that reported on Phases I chased infrequently by a share. Under most circumstances, enterprises that and II of a project spon- fragmented customer have achieved a high share of the markets they sored by the Marketing group. The authors also serve are considerably more profitable than their Science Institute and the analyze the strategic The basic purpose of (h smaller-share rivals. This connection between mar- arvar implications of the market-share/ROI rela ket share and profitability has been recognized by tionship. They conclude by demonstrated in the results of a project undertaken the profit impact of mar- advising companies to ket strategies (PIMS) analyze their own positions by the Marketing Science Institute on the Profit Im The earlier article estab- in order to achieve the pact of Market Strategies(PIMS). The PIMS project, lished a link between stra- best balance of costs and on which we have been working since late I97I, tegic planning and profi is aimed at identifying and measuring the major performance; here, w strategies determinants of return on investment(ROI) in in additional data, the authors dividual businesses. Phase II of the PIMS project, come up with a positive Mr. Buzzell, who is re completed in late 1973, reveals 37 key profit influ- correlation between market search director of the share and ROI. The authors PIMS project, is professor ences, of which one of the most important is market discuss why market share of business administration share profitable, listing econo- and chairman of the mies of scale, market marketing area at the There is no doubt that market share and return on power, and quality of Harvard Business School investment are strongly related. Exhibit I shows management as possible Mr. Gale, associate pro- average pretax ROI figures for groups of businesses explanations, then, using fessor of economics at the in the PIMS project that have successively increasing the PIMs data base, University of Massachu- shares of their markets. (For an explanation of how they show how market setts-Amherst, is currently businesses, markets, and ROI results are defined and share is related to ROI on sabbatical to direct the measured in the PIMS project, see the ruled insert Specifically, as market economic analysis of the share increases, a business PIMS project. Mr Sulta on page Ios. On the average, a difference of Io per is likely to have a higher chief economist of the? centage points in market share is accompanied by a profit margin, a declining Royal Bank of Ca difference of about s points in pretax ROL. anada purchases-to-sales rati Montreal, was a member a decline in marketing costs of the Harvard Business rs'note: We wish to acknowledge the ntage of sales, School faculty. He MS project to the results reported in t as a percen higher quality, and higher directed the PIMS project ut numerous analyses very and cheerfully. The priced products. Data from its inception in are, of course, solely responsible for any errors or misinterpretations also indicate that the late 197I until early 1973 dvantages of large earlier article on Phases I and II of the project by Sidney Schoeffle ). Buzzell, and Donald F, Heany, " Impact of Strategic-Planning arket share are greatest Performance, HBR March-April 1974