While ambling through cyberspace the other day, I found myself at a blog where blogger and business professor John Austin expounded on the dangers of "market-share myopia":
"Market-share myopia is a condition that has affected most large business organizations at some point or another. It comes from the single-minded pursuit of market share. Some sufferers of this myopia still cling to the belief that growing market share is the only appropriate strategic goal. It can cause short-sided decisions and leave companies hobbled when customer markets shift."
So far, so good. He went on to note, "This absurdly simplistic approach to business strategy was all the rage in the '70s, thanks to the wildly popular BCG (Boston Consulting Group) growth-share matrix. The matrix generated a widely held perception that low market share markets were not worth pursuing. Anyone who went through business school in the '70s or early '80s was well-versed in the BCG model." I looked up this concept and found, to my amusement, that it was indeed one I remembered learning about in business school myself -- in the mid-'90s!
What's so bad about focusing so much attention on market share? Well, imagine the typewriter industry in the 1970s and early 1980s. A typewriter manufacturer that was focusing most of its energy on its market share might be pleased if it had achieved great growth on that front. But if it wasn't paying attention to changes in technology, along with consumer preferences at the time, it would end up blindsided by the wide adoption of personal computers. You might be enjoying a bigger and bigger percentage of the pie, but if the pie itself is shrinking, you'll end up hungry.
Austin offered an automotive example. For too long, he pointed out, American vehicle makers like General Motors
As another example, consider Coca-Cola
- "For the quarter, carbonated soft drink unit case volume grew by 2% led by growth in the International Operations of 3%. The Company maintained its share position in the carbonated soft drink category in the first quarter compared to the prior year quarter."
- "Unit case volume for noncarbonated beverages, excluding water, grew by 4% for the quarter led by juice and juice drinks growth in North America of 16% and growth in the International Operations of teas/coffees and sports drinks of 6% and 18%, respectively. In the quarter versus the prior year quarter, the Company gained share in the sports drink category and maintained share in the juice/juice drinks category. Share declined in the ready-to-drink coffee/tea category but is being addressed with new innovation in this important category, particularly in Japan."
- "Total water unit case volume grew 8%, driven by worldwide growth in the Dasani brand of 15% along with solid growth in many of the regional brands. For the quarter, share improved in this competitive category."
Had Coke simply focused on being the biggest carbonated drink purveyor, it might have done well. But it probably wouldn't be as big a company as it is today.
When evaluating potential investments, look for signs of market-share myopia, and steer clear if you spot it. Conversely, give companies credit when they explore logical extensions of their businesses.
Longtime Fool contributor Selena Maranjian owns shares of Coca-Cola. The Motley Fool has a disclosure policy.