Market share This explanation is probably valid for some of the important cost advantage from their ability to utilize businesses in the sample, but we believe that, in the the most efficient mass-advertising media majority of cases, the decline in costs of purchased materials also reflects a combination of economies In addition, leading brands of consumer products of scale in buying and, perhaps, bargaining power in appear to benefit to some extent from a"bandwagon dealing with suppliers. Economies of scale in pro- effect"that results from the brand's greater visibil- curement arise from lower costs of manufacturing, ity in retail stores or greater support from retail marketing, and distributing when suppliers sell in store sales personnel. For example, Anheuser-Busch large quantities For very large-scale buyers, custom- has for some time enjoyed lower advertising costs designed components and special formulations of per case of beer than its smaller rivals-just as the materials that are purchased on long-term contracts advertising expense per car of General Motors is may offer"order of magnitude"economies significantly lower than that of other competing auto manufacturers Still another possible explanation of the declining purchases-to-sales ratio for large-share businesses 4 might be that they charge higher prices, thus in- Market leaders develop unique competitive strategies creasing the base on which the percentage is figured. and have higher prices for their higher-quality prod This does not, however, appear to be the case ucts than do smaller-share businesses. The figures in Exhibit ll do not show smooth, continuous relation In Exhibit II we give measures of price relative to ships between market share and the various com- competition for each group of businesses that in- ponents of price, cost, and investment.Indeed, it dicate otherwise. Because of the great difficulty of appears that one pattern operates as share increases computing meaningful relative price-index numbers up to 40%, but a somewhat different pattern above the measure we used here is rather crude. We asked that figure the PIMS participants to indicate on a five-point scale whether their prices were"about the same"as major Particularly, there are substantial differences in rela competitors,"somewhat"higher or lower, or"sub- tive price and product quality between market lead stantially higher or lower for each business. The ers and the rest of the sample Market leaders obtain average values of this scale measure are virtually higher prices than do businesses with smaller market identical for each market-share group, except for shares. A principal reason for this may be that mar- those with shares over 4o% ket leaders also tend to produce and sell significantly higher-quality products and services than those of Despite the similarity of relative prices for the first their lower-share competitors four share groups, the purchases-to-sales ratios de- cline in a regular, substantial fashion as share in- We measured quality as follows: We asked the par creases In light of this, we do not believe that the ticipating companies to judge for each business the decline in purchase costs is a reflection of higher proportions of total sales comprised of products and price levels imposed by "market power. services that were "superior, ""equivalent, "and"in- ferior"to those of leading competitors. The figures 3 shown in Exhibit II are averages of the differences As market share increases, there is some tendency between the superior quality and the inferior quality for marketing costs, as a percentage of sales, to de. percentages cline. The difference in marketing costs between the smallest and largest market-share groups amounts The measures we used for relative price and relative on the average to about 2% of sales. We believe that quality are not, of course, directly comparable. Thus this reflects true scale economies, including the it is impossible to determine which is greater-the spreading of fixed marketing costs and the ability price premiums earned by market leaders, or the dif of large-share businesses to utilize more efficient ferential in the quality of their products. But it is media and marketing methods. In the case of indus- clear that the combination of significantly higher trial products, large scale permits a manufacturer prices and quality represents a unique competitive to use his own sales force rather than commissioned position for market leaders. agents and, at some point, to utilize specialized sales forces for specific product lines or markets For con- Market leaders, in contrast to their smaller com sumer goods, large-scale businesses may derive ar petitors, spend significantly higher amounts on re search and development, relative to sales. As shown