Market share The PIMs data base The data on which this arti Data compiled for indi As explained in the earlier dual businesses by means HBR article, the focus of the unique pool of operating of special allocations of PIMS project has been pri- isting company data and marily on ROI because this PIMS project, now in its third for some items, judgmental is the performance measure ear of operations at the estimates supplied by oper- most often used in strategic Marketing Science Institute ating managers of the ning. W uring 1973, 57 major North panies. however, that RoI results are American corporations often not entirely compar- For each business, th able between businesses. information on 620 individual panies also provided esti- When the plant and equip businesses for the three- mates of the total sales it ment used in a business have year period 1970-1972. he market served by the business Markets were measured by relating pretax been almost tull y dep\ Each business is a division defined, for purposes of the operating profits to the sum be inflated. Also, Rol results product line, or other profit PIMS study, in much nar. debt are affected by patents, trade center within its parent com- rower terms than the "indus- Operating income in a busi- secrets, and other proprietary pany, selling a distinct set of tries"for which sales and ness is after deduction of aspects of the products or products or services to an other figures are published allocated corporate overhead methods of operation identifiable group or groups by the Bureau of the Census, costs, but prior to any capita employed in a business. of customers, in competition Thus the data used to meas charges assigned by corpo- hese and other differences with a well-defined set of ure market size and growth rate offices, As in the ca among businesses should competitors. Examples of rates cover only the specific of market share data. the rol naturally be kept in mind in businesses include manufac- products or services, cus- figures shown in Exhibits I evaluating the reasons for turers of TV sets: man-made types, and geograph V, and vi are averages for variations in ROI performance fibers: and nondestructive areas in which each business 1970-1972 dustrial testing apparatus actually operates panied by premium quality )Also, ROI is usually successfully. Market leaders enjoyed rates of re- greater for large-share businesses when they spend turn about three quarters of a point higher when more than their major competitors, in relation to they allowed market share to decline than when they sales, on sales force effort, advertising and promo. maintained it over the period 1970-1972. For the tion, and research and development. other groups of businesses shown in Exhibit VI, dif ferences in ROI between"holdingand"harvesting For small-share businesses, however, the most prof- are irregular. Of course, these comparisons also re- itable holding strategy is just the opposite: on the flect the influence of factors other than strategic average, ROI is highest for these businesses when choice. Market share was lost by many businesses their prices are somewhat below the average of lead- because of intensified competition, rising costs, or ing competitors and when their rates of spending other changes which hurt both their profitability on marketing and R&D are relatively low and their competitive positions. For this reason, it is impossible to derive a true measure of the profit ability of harvesting. Nevertheless, the PIMS data Opposed to a share-building strategy is one of"har- support our contention that, under proper condi vesting -deliberately permitting share to fall so that tions, current profits can be increased by allowing higher short-run earnings and cash flow may be se- share to slide cured. Harvesting is more often a matter of neces sity than of strategic choice. Cash may be urgently When does harvesting make sense, assuming it is a needed to support another activity-dividends, for matter of choice? A reduction in share typically example, or management's earnings record. What- affects profits in a way directly opposite to that of ever the motivation, corporate management some- building: ROI is increased in the short run but re- imes does elect to"sell off part of a market-share duced in the longer term. Here again, a trade-off must be made. The net balance will depend on man agement's assessment of the direction and timing of The experience of the businesses in the PIMs data future developments such as technological changes, pool, summarized in Exhibit VI, indicates that only as well as on its preference for immediate rather large-share businesses are generally able to harvest than deferred profits