Who is Integrated Strategies?

December 28, 2007

Market Share versus Profit Motivations

Techdirt recently ran a comment on an article critiquing an article called "Wharton Prof Debunks Market Share Myth." The comment and article got me thinking about the way different companies approach development and strategy of new products.

I think the focus of the article is more on the R&D side of the business as opposed to the marketing once the products were on the shelf. Nintendo went in with the intention of creating a system that was profitable Day 1 with no loss per device sold. Microsoft and Sony went into development trying to capture a % of the existing market through upgraded systems. It was the focus at this stage on profit vs. market that made the long-term difference.

One of the catches of innovation is that market share does not necessarily come with it. It was because Nintendo decided to be innovative that they also had to be profit focused. Similarly, when Apple first release the iPod it was an innovative product but priced for profit and not market share. Both companies, Nintendo and Apple, went in trying to make money off of an innovative product and wound up gaining market share as a by-product. The key third ingredient now becomes innovation.

Innovation alone does not guarantee success which is why the profit motive becomes so important. Any successful product now becomes a driver for more innovation because the profits can be reinvested to allow a company to overcome poor performances in other products. Microsoft and Sony have put themselves in a situation where they have no profit-center for their lines if failure occurs. Nintendo would have had the ability to start again since they were not invested in the inventory in the market with the Wii.

The question becomes how does your company approach new products or services? If you are the market leader are you simply creating products that will retain your position or are you out there striving to be bigger and better? If you aren't at the top of the pile are you simply trying to pick up market share or are you trying to thrive where you are and pick profit by doing things better than the big boys? There are important distinctions between the two though processes that can either help you succeed or cause you to fail.

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