Bendle and Bagga | Should you use market share as a metric?

When measuring organizational performance, market share is not always a reliable measure of return on investment (ROI).

In their article in MITSloan Management Review, Ivey Assistant Professor Neil Bendle and Charan Bagga, PhD ’15, an assistant professor at Haskayne School of Business, discuss how market share is commonly misunderstood and misused by managers.

Their research reveals managers use market share as either an ultimate objective, or an intermediary measure of success, even though the relationship between market share and ROI may be correlational rather than causal. 

“In some markets, market share probably does help increase future profits, but this is not always the case: General Motors Co. was the world’s biggest car maker before filing for Chapter 11 bankruptcy court protection in June 2009,” they said. “Therefore, it is critical to understand the expected relationship between market share and profitability in your specific market.”

They advise managers to measure performance through a size metric, like sales volume, to increase organizational profitability, instead of prioritizing market share.