It is a common practice of many companies to focus their attention on grabbing market share from their competitors. But such efforts can actually be detrimental to the firm's profitability, according to Wharton marketing professor J. Scott Armstrong.
For years, Armstrong has been conducting research showing that competitor-oriented objectives, such as setting market-share targets, are counterproductive. After co-authoring a paper in 1996 that reached this conclusion, he and a different co-author, Kesten C. Green of Monash University in Australia, have written another paper summarizing 12 new studies that add additional weight to the original conclusion. Their study is titled, "Competitor-oriented Objectives: The Myth of Market Share."
Business has long been likened to warfare, Armstrong says, so it is hardly surprising that companies want to beat their competitors. In the 19th century, it was common for many American executives to strive for revenue maximization. To see how well they were doing, companies compared themselves to competitors in their industries. But in the mid-20th century some academic scholars began to question the widespread focus on market share. In 1959, one researcher "lamented the common use of market-share objectives and discussed the logical and practical flaws of pursuing such objectives," according to Armstrong and Green.
In the 1996 paper, Armstrong and Fred Collopy of Case Western Reserve University summarized a host of studies by other researchers that examined the prevalence of competitor-oriented objectives.
For instance, several researchers in the 1950s and 1960s had groups of subjects play repeated games in which cooperation was necessary to maximize profits. The researchers found that when they provided feedback to subjects on other subjects' performance, nearly 90% of the choices that the subjects made were competitive and hence low-profit.
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