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Share of Market Feeds the Ego.
Share of Customer Feeds the Company.

The rivers of change have washed away business traditions and institutions aplenty. And what hasn't washed away has been turned over and around and upside down until the business landscape is almost unrecognizable from what it was a decade ago. But one business icon stands relatively unscarred and unscathed. Share-of-market. The preeminent importance of share-of-market. It just won't fall.

Share-of-market still survives as the leading measure of business success. And we send ourselves a variety of reassuring messages to keep it that way:

"Never mind the profits aren't quite where they should be. Strong market share will eventually take care of that."

"Never mind that customers are leaving at a faster rate than previously. New customer acquisitions will take their place. We'll never miss 'em."

"Never mind that customers say we're not responding to their needs. We're still bigger and stronger than our competitors. Besides, our brand strength will keep our customers loyal."

"We may lose on every transaction, but we'll make it up on volume."

"Never mind that it's costing us five times as much to generate sales growth by acquiring new customers than by retaining or expanding current customer relationships. We're on budget, and besides…"

Say what?

That's right, it costs many organizations five times as much to generate new sales through customer acquisition as it does to build sales by building stronger customer relationships. In fact, it costs some companies ten times as much. Others even twenty times as much.

Despite these lopsided ratios, which are particularly germane to business-tobusiness marketing situations, the "share-of-market" icon continues to stand tall. There are several reasons why:

• Our emotional attachment to the process of acquiring new customers. It makes us feel like we're really doing something. On the other hand, focusing our attention on building customer relationships often makes us feel like we're doing less -- even though we're usually accomplishing more.
• The common perception that building customer relationships doesn't offer sufficient growth potential. For some organizations, there's some truth in that perception. Regardless, why bypass "low-hanging fruit" in our rush to climb a tall ladder and stretch for hard-to-reach limbs?
• New customer acquisition is the "fun" part of marketing. Building relationships with current customers is "trench work" that finds few champions in marketing departments -- and virtually none in advertising agencies.
• New customer acquisition is the "fun" part of sales. It's also the most profitable for reps. Most sales professionals prefer the "buzz" they get from closing a new account to the quiet satisfaction of gaining more business from a current customer. Most organizations also compensate sales better for new customers than for relationship-building.

"The market" never bought a thing. "The market," the collection of customers who buy ours or similar products, acts as a surrogate for real customers. Because we don't know our customers individually (and perhaps can't figure out how to cost-effectively reach them individually) we promote to this mythical entity called "the market" instead. Dealing with average customer values rather than individual values is not only convenient -- it appears to be efficient. In fact, dealing with average customer values rather than real customers is the foundation of mass marketing. Mass marketing thinking and the share-of-market mindset are inseparable.

Even in business-to-business marketing, where "niche marketing" and "target marketing" have long been everyday phrases, mass marketing thinking and the share-of-market mindset are joined at the hip. Zeal for fully penetrating market segments, even narrowly defined market segments, leads to force-fitting dissimilar customers into segment boxes labeled with supposedly shared attributes, likes and dislikes. That lets us market to whole segments at one time.

But among the traditional business beliefs washed away by the currents of change is the perception of "whole markets" -- homogenous markets where similarities among customer groups far outweigh individual needs, preferences and buying behavior. The advent of new customer informationgathering and management technologies has revealed the tendency for customers to act individually for reasons and motives all their own.

So what happens when the market stops speaking with one voice? How should we react when the customer choir stops singing in homogenous tones, and we start hearing a cacophony of requests, complaints, wishes, criticisms -- and perhaps start hearing customer feet walking toward the exits? That's when we have to stop and remember who actually does the buying in the marketplace. The customer. That's when we have to stop marketing to surrogates -- and start marketing directly to individual customers, or to the smallest practical groups of customers that really do think and buy alike.

One of the costliest aspects of overemphasizing share-of-market is that it drives us to appeal to as many customers as possible. Building share-ofmarket pushes us to reach for lowest-common-denominators of customer need and satisfaction. Appealing to base needs and values is how we reach out to as many customers as possible as "efficiently" (but usually not as effectively) as possible. That's the essence of mass marketing. But increasingly, when we try to satisfy everyone we risk satisfying no one.

Slice of a steadily shrinking pie. Among all of the business buzz words bandied about, here's one you've probably never heard. Individuation. It's used most often by psychiatrists, psychologists, and gerontologists and means expressing our uniqueness more and becoming less like other people. Individuation happens to us as we mature, a process which typically starts in our early to mid-forties. And when many of us start "individuating" together, as the early baby boomers are doing now, that further splinters the markets that are already much less homogenous than previously assumed.

Individuation is also having a profound effect on organizations. Casual dress is a good example. Commonality among corporate cultures is diminishing. Consequently, so is commonality among corporate processes, including buying. These "markets" of businesses that supposedly thought and acted alike are splintering into subsets, which in turn fragment further. Now, when we say "share-of-market" we have to qualify what we mean -- because what was one market yesterday may be ten tomorrow. And maintaining share in all of them may be a money losing proposition because our products may suit some splinters much better than others -- and may no longer suit some splinters at all.

Share-of-market strategies vs. share-of-customer strategies. Share-ofmarket vs. share-of-customer is among those decisions that have profound and lasting effects on organizations. Let's look at several examples.

Overnight turnover. Once there was (and there is no more) a national courier service that competed with Federal Express et. al. This new player offered a unique mix of ground, charter air and commercial air cartage between delivery centers. That gave it a theoretical advantage in terms of service flexibility and line-haul costs. Customers found the flexibility and lower rates appealing, initially. But all efforts were focused on customer acquisition. Sales was compensated for new customers. Marketing never thought about customers after trial. Management set their sights on increased market share.

In a service intensive business, no formal effort was made to hold onto customers. Profitability kept falling. Black ink turned red. Customers were leaving out the back door as fast as marketing could bring them in the front door. Before long, the churn rate was .8 -- in other words, 100% customer base turnover every 15 months. The company had to be sold in pieces. And not for much. That was the price of putting all their eggs into the customer acquisition basket.

From 50 comes 1. A major player in the industrial electronics market once had fifty different databases containing customer information. Data was kept by each product sector or by whomever was motivated to collect it. There was no common platform or data organization. Each database was an island unto itself. And not surprisingly, multiple representatives often called on the same customer, unaware of each other's presence.

Then the organization decided to turn 50 into 1. All customer data was converted to a common platform. Data organization was standardized. More data was collected at the customer level and forwarded to corporate -- now that it had someplace to reside. Data sharing led to understanding the value of key customers -- and the untapped potential of others. Suddenly it was possible to create cross-product and cross-divisional strategies to win more business from specific accounts. Gathering, sharing and acting upon information about individual customers led to increased profitability and to much stronger bonds with key customers.

Key accounts create corporate focus. A business services company was growing rapidly by offering a wide range of services to a wide range of customers. Growth was great, market share among key service areas was even better. But profits lagged. Trying to be a dominant player, even in a narrowly defined target market, wasn't producing satisfactory results.

Rather than look for even more customers to jack up profits, this organization did something smart. It looked for less. Careful customer profitability analysis revealed that their problem was trying to service too many customers within what was supposedly "one market." Offering too many variations of the same basic services to suit companies of different sizes and shapes was diluting profits. It was also costing this organization its focus. So the company identified a much smaller number of customers that offered more concentrated potential. Instead of covering the market, this company covered its best customers. Now, not only are profits up, but growth and momentum are greatly improved as a result of focusing on share-of-customer rather than share-of-market.

In reality, there are almost as many stories like these as there are business organizations. Virtually every business is affected by the decision whether to emphasize share-of-market or share-of-customer -- even when they default to share-of-market without ever making a conscious decision.

Developing a share-of-customer mindset. If you find yourself anxious to take advantage of customer marketing opportunities, but still influenced by share-of-market thinking, you might consider taking these steps.

Taking just one of these suggestions, especially in business marketing, will probably cure you of "share-of-market syndrome" for life. If your focus is on "feeding your company," customers are more filling than markets.

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