Markets

Market share is the proportion of total sales in a market that is held by one firm, usually expressed as a percentage — for example, a firm with $8m of sales in a $40m market has a 20% market share.

Product orientation means a business focuses on the product itself — its quality, design or technology — and assumes customers will want it. Customer (market) orientation means the business focuses on customer needs first, researching what customers want and then designing products to satisfy them. The key difference is the starting point: product orientation starts with what the firm can make, while market orientation starts with what customers want — which usually lowers the risk of making a product nobody buys.

Market share is the firm's sales as a percentage of total market sales, so it depends on both the firm's own sales and the size of the whole market.

A firm's sales can rise while its market share falls if the whole market grows faster than the firm. For example, suppose a firm's sales rise from $5m to $7m (+40%), but over the same period the total market grows from $25m to $50m (+100%). Its market share falls from (5÷25) = 20% to (7÷50) = 14%, even though its sales increased.

This happens because rivals captured more of the new demand than the firm did. So although the firm is selling more in absolute terms, its competitive position has weakened relative to competitors — which is why a business should always compare its own growth with the growth of the market, not just look at its sales figures.

A customer (market) orientation means the business researches customer needs first and then designs products to satisfy them, rather than making a product and hoping customers will want it.

The main benefit is a lower risk of failure. Because products are based on researched customer needs, they are far more likely to sell, reducing the chance of an expensive flop. This is especially valuable in competitive consumer markets where customers have many alternatives and tastes change quickly. A market-oriented firm also stays close to its customers, so it can spot changing preferences early and adapt, helping it keep and grow market share and build customer loyalty. Responding to what customers want can also strengthen the brand and justify a price premium.

However, the benefits are not unlimited. Market research is costly and not always accurate, and customers cannot always say what they want from genuinely new products — so a purely market-oriented firm may produce only safe, 'me-too' products and miss radical innovations that a more product-oriented firm might create.

Therefore market orientation brings real benefits — lower failure risk, customer closeness, loyalty and share — particularly in competitive, fast-changing consumer markets. But the firm should combine customer focus with some product innovation, since relying only on what customers currently say they want can limit breakthrough products.

Expanding from a national to an international market means selling to customers in other countries. For a successful national business this offers significant opportunities but also real risks.

The case for expanding internationally is a much larger market. Access to many more potential customers can raise total sales and revenue, and selling in several countries spreads risk, so a downturn in the home market is cushioned by demand elsewhere. A bigger scale can bring economies of scale, lowering unit costs, and entering a fast-growing overseas market can offer growth the saturated home market cannot. For a firm that is already successful nationally, it has a proven product and the resources to attempt this.

The case against is that international markets bring extra costs and risks. Cultural and taste differences may mean the product must be adapted, and the firm faces unfamiliar regulations, competition and currency risk (exchange-rate movements can wipe out profit). Managing distant operations is harder and can stretch management. If the expansion is rushed or the product is wrong for local tastes, the firm could make heavy losses and damage its reputation.

Judgement. International expansion is likely to be worthwhile if the firm has the resources to fund it, the product can be adapted to local needs, and the target market is growing — under these conditions the larger market and risk-spreading outweigh the extra costs. However, it is not sensible if the home market still offers growth, if the firm lacks the finance or management capacity, or if local conditions are very different and risky. The most defensible conclusion is that, for this successful business, international expansion is a strong opportunity provided it researches the target market carefully and expands at a pace it can resource — so the decision depends on the firm's resources and how well the product fits the new market, not on the size of the opportunity alone.

Rising sales are often taken as a sign of success, but on their own they can be misleading. Whether a rise in sales shows good performance depends on what is happening to market share, costs, profit and the wider market.

The case that rising sales show good performance. Higher sales mean the business is selling more of its products, which usually brings in more revenue. If costs are controlled, more revenue can lead to higher profit, and growing sales can support economies of scale and signal that customers like the product. For a new or expanding business, rising sales are a basic and important sign that it is gaining traction in the market. In a stable market, a clear rise in sales typically does reflect genuine improvement.

The case that rising sales can be misleading. First, sales can rise while market share falls if the whole market is growing faster than the firm — for example, sales up from $5m to $7m (+40%) while the market doubles, cutting share from 20% to 14%. Here the firm is actually losing ground to rivals despite higher sales. Second, rising sales do not guarantee profit: a firm can boost sales by cutting prices so far that it makes a loss, or by spending heavily on promotion that costs more than the extra sales earn. Third, sales might rise simply because the whole market grew (e.g. an economic boom), not because the firm did anything well. Fourth, performance is about more than sales — cash flow, profit margins, costs and long-term sustainability all matter, and a sales rise that strains cash flow can even threaten survival.

Weighing it up (criterion). Whether rising sales show good performance depends on what happens to market share and profit, and on whether the rise comes from the firm's own efforts or from the market. A sales rise that is accompanied by stable or rising market share and healthy profit is strong evidence of good performance. A sales rise alongside falling share, falling margins, or only because the whole market grew is weak evidence and may even hide deterioration.

Judgement. A rise in sales shows good performance only to a limited extent and only when supported by other evidence. It is a useful starting indicator and is genuinely positive when market share and profit also rise. But because sales can increase while share and profit fall — and because the market itself may simply have grown — rising sales alone are not reliable proof of good performance. The most defensible conclusion is that a rise in sales suggests good performance only when accompanied by rising or stable market share and profitability and driven by the firm's own competitiveness; judged in isolation, it can be very misleading.