Importance of Marketing » Building Market Share and Customer Base

What you'll learn this session

Study time: 30 minutes

The concept of market share and its importance to businesses
Strategies for building and maintaining market share
Methods for developing a strong customer base
How to measure market share and customer loyalty
Real-world examples of successful market share growth

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Building Market Share: The Foundation of Business Growth

For businesses to thrive in competitive markets, they need to secure a healthy portion of customers in their target market. This portion is called market share and it's a vital indicator of business success and competitive strength.

Key Definitions:

Market Share: The percentage of total sales or customers a business has in a specific market compared to competitors.
Customer Base: The group of customers who repeatedly purchase a company's products or services.
Market Penetration: The extent to which a product or service is known and used by customers in a particular market.

📊 Why Market Share Matters

A large market share typically means:

Greater economies of scale
Higher profitability
Stronger brand recognition
More influence over suppliers
Better ability to withstand market challenges

👥 Customer Base Value

A loyal customer base provides:

Consistent revenue streams
Lower marketing costs per customer
Valuable feedback for improvement
Word-of-mouth marketing
Protection against competitor advances

Strategies for Building Market Share

Businesses use various approaches to increase their slice of the market pie. These strategies need to be tailored to the specific market conditions, customer needs and competitive landscape.

Product and Service Differentiation

Standing out from competitors is essential for capturing market share. Companies can differentiate themselves through:

✅ Quality

Offering superior products or services that outperform competitors. Example: Apple's focus on premium design and user experience.

💰 Price

Competing on cost through efficiency or scale. Example: Aldi and Lidl gaining UK grocery market share through competitive pricing.

💡 Innovation

Creating new features or entirely new products. Example: Dyson revolutionising the vacuum cleaner market with bagless technology.

Pricing Strategies to Gain Market Share

How a business prices its products can significantly impact its market share. Different pricing approaches serve different market objectives:

📉 Penetration Pricing

Setting a low initial price to rapidly gain market share. This works well for new market entrants who need to quickly establish a customer base.

Example: Netflix initially offered very low subscription rates to attract customers away from traditional TV and DVD rentals.

💎 Premium Pricing

Setting higher prices to create a perception of quality and exclusivity. This targets specific market segments willing to pay more.

Example: Hotel Chocolat positions itself as a premium chocolate brand, commanding higher prices than mainstream competitors.

Marketing and Promotion

Effective marketing is crucial for building awareness and attracting customers. Businesses use various promotional techniques to increase their market share:

Advertising: Paid promotions across various media channels
Public Relations: Managing the public image of the business
Sales Promotions: Short-term incentives to encourage purchases
Digital Marketing: Using online channels to reach potential customers
Social Media: Building communities and engagement around the brand

Case Study Focus: JD Sports

JD Sports has significantly increased its market share in the UK sportswear market through several strategies:

Securing exclusive product lines from major brands like Nike and Adidas
Creating an appealing in-store experience for younger shoppers
Developing a strong online presence with user-friendly website and app
Strategic acquisitions of competitors like Footasylum
Expanding internationally while maintaining strong UK presence

Result: JD Sports now controls approximately 30% of the UK sports fashion market, significantly ahead of competitors like Sports Direct.

Building a Strong Customer Base

Market share isn't just about attracting new customers it's also about keeping them. Building a loyal customer base is often more cost-effective than constantly acquiring new customers.

Customer Relationship Management (CRM)

CRM involves systems and processes that help businesses manage interactions with current and potential customers. Effective CRM helps businesses:

Track customer preferences and purchase history
Personalise marketing communications
Identify opportunities for upselling and cross-selling
Resolve customer issues quickly
Measure customer satisfaction and loyalty

🤝 Loyalty Programmes

Structured rewards systems that encourage repeat purchases and long-term customer relationships.

Examples:

Tesco Clubcard - Points-based system with personalised offers
Boots Advantage Card - One of the most generous retail loyalty schemes
Costa Coffee Club - Digital app-based rewards system

🌟 Customer Service Excellence

Providing outstanding support before, during and after purchase to build trust and loyalty.

Examples:

John Lewis's "Never Knowingly Undersold" policy
First Direct's 24/7 UK-based customer service
Amazon's hassle-free returns process

Measuring Market Share and Customer Base

To effectively manage market share and customer base, businesses need to measure their performance using various metrics:

📈 Market Share Metrics

Sales value market share
Sales volume market share
Relative market share (compared to largest competitor)

👤 Customer Base Metrics

Customer retention rate
Customer lifetime value (CLV)
Net Promoter Score (NPS)

🚀 Growth Metrics

Customer acquisition cost (CAC)
Conversion rates
Market penetration rate

Case Study Focus: Greggs' Market Share Growth

Greggs, the UK bakery chain, has significantly increased its market share in the food-to-go sector through several strategic moves:

Product Innovation: Introducing the highly successful vegan sausage roll in 2019, which drove new customers to stores
Store Expansion: Opening in new locations including transport hubs, retail parks and shopping centres
Brand Repositioning: Moving from traditional bakery to food-on-the-go retailer
Digital Engagement: Clever social media marketing and partnerships with delivery services
Value Proposition: Maintaining affordable prices while improving product quality

Result: Greggs has grown to over 2,000 stores nationwide and significantly increased its share of the UK food-to-go market, competing effectively with both coffee chains and fast-food outlets.

Challenges in Building Market Share

Businesses face several obstacles when trying to increase their market share:

Intense Competition: Established competitors may respond aggressively to market share threats
Changing Consumer Preferences: Customer needs and wants evolve over time
Market Saturation: Some markets have limited growth potential
Resource Constraints: Smaller businesses may lack the resources to compete with larger rivals
Regulatory Restrictions: Anti-monopoly laws may prevent excessive market dominance

Sustainable Market Share Growth

Building market share isn't just about short-term gains. Sustainable growth requires:

🔮 Long-term Planning

Developing strategies that build lasting competitive advantages rather than quick wins. This might involve investment in:

Research and development
Staff training and development
Brand building
Infrastructure and systems

⚖️ Ethical Considerations

Growing market share responsibly with attention to:

Environmental impact
Fair treatment of suppliers
Honest marketing practices
Community engagement
Customer data protection

Summary: The Path to Market Share Success

Building market share and a strong customer base requires a comprehensive approach that combines:

Clear understanding of target customers and their needs
Effective differentiation from competitors
Strategic pricing that aligns with brand positioning
Strong marketing and promotional activities
Excellent customer service and relationship management
Regular measurement and analysis of performance
Adaptability to changing market conditions

By focusing on these elements, businesses can grow their market share sustainably and build a loyal customer base that provides long-term success.

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