Typically, a strategic business unit operates as a separate unit, but it is also an important part of the company. It reports to the headquarters about its operational status. Description: A strategic business unit or SBU operates as an independent entity, but it ha.
Rebranding is the process of changing the corporate image of an organisation. It is a market strategy of giving a new name, symbol, or change in design for an already-established brand. The idea behind rebranding is to create a different identity for a brand, from its competitors, in the market. Description: There are several reasons for a company to go for rebranding.
One prominent factor is t. Choose your reason below and click on the Report button. This will alert our moderators to take action. Nifty 18, Zomato Ltd. Market Watch. ET NOW. Brand Solutions. Video series featuring innovators. ET Financial Inclusion Summit. Malaria Mukt Bharat. Wealth Wise Series How they can help in wealth creation.
Honouring Exemplary Boards. Deep Dive Into Cryptocurrency. ET Markets Conclave — Cryptocurrency. Reshape Tomorrow Tomorrow is different. Let's reshape it today. Corning Gorilla Glass TougherTogether. ET India Inc. ET Engage. ET Secure IT. Suggest a new Definition Proposed definitions will be considered for inclusion in the Economictimes. Market Leader Definition: A market leader could be a product, brand, company, organisation, group name which has the highest percentage of total sales revenue of a particular market.
Market leader dominates the market by influencing the customer loyalty towards it, distribution, pricing, etc. Description: Market leader can be attributed to a firm which has the largest market share in a given industry. The term could also be ascribed to a firm which has the highest profitability margin as well. The market share is calculated by dividing the volume of goods sold by a particular firm by the total number of units in the market. Market leadership as a concept holds much relevance in the internet age because over a period of time we have seen large number of companies becoming market leaders.
New products bring new sales and new sales increase market share. The maintenance and continuous improvement of quality products. Companies that consistently build market share in the automotive industry, in telecommunications, and in any business to business market are more usually those that demonstrate that their products are of the highest quality.
A high level of activity by the sales force. Marketers know that high levels of promotional expenditure build market share. In business to business markets, the efforts of the sales force are critically important here and any financial stringency that results in cutbacks of this important activity will threaten the market share.
Market shares are an indicator of the relative strength of a supplier to a market. It is vital intelligence for any company developing its marketing strategy. It is also surprising how ignorant managers can be of their market share. Interestingly, most people lacking perfect knowledge exaggerate or are over-optimistic about their market share rather than thinking that it is smaller than it actually is.
Market share also needs to be seen in the context of the definition of the market. Depending on how you define your market determines the strategy you will adopt. Companies can assess their market share in different ways. The data on which this article is based come from the unique pool of operating experience assembled in the PIMS project, now in its third year of operations at the Marketing Science Institute.
Each business is a division, product line, or other profit center within its parent company, selling a distinct set of products or services to an identifiable group or groups of customers, in competition with a well-defined set of competitors.
Examples of businesses include manufacturers of TV sets; man-made fibers; and nondestructive industrial testing apparatus. Data were compiled for individual businesses by means of special allocations of existing company data and, for some items, judgmental estimates supplied by operating managers of the companies.
For each business, the companies also provided estimates of the total sales in the market served by the business. Thus the data used to measure market size and growth rates cover only the specific products or services, customer types, and geographic areas in which each business actually operates. The market share of each business is simply its dollar sales in a given time period, expressed as a percentage of the total market sales volume.
The figures shown are average market shares for the three-year period — The average market share for the businesses in the PIMS sample was Return on investment was measured by relating pre-tax operating profits to the sum of equity and long-term debt.
Operating income in a business is after deduction of allocated corporate overhead costs, but prior to any capital charges assigned by corporate offices. We recognize, however, that ROI results are often not entirely comparable between businesses. When the plant and equipment used in a business have been almost fully depreciated, for example, its ROI will be inflated. Also, ROI results are affected by patents, trade secrets, and other proprietary aspects of the products or methods of operation employed in a business.
These and other differences among businesses should naturally be kept in mind in evaluating the reasons for variations in ROI performance. Granted that high rates of return usually accompany high market share, it is useful to explore the relationship further. Why is market share profitable? What are the observed differences between low- and high-share businesses? Does the notion vary from industry to industry?
In this article we shall attempt to provide partial answers to these questions by presenting evidence on the nature, importance, and implications of the links between market share and profit performance. The data shown in Exhibit I demonstrate the differences in ROI between high- and low-market-share businesses.
This convincing evidence of the relationship itself, however, does not tell us why there is a link between market share and profitability. There are at least three possible explanations:. Since, in a given time period, businesses with large market shares generally also have larger cumulative sales than their smaller competitors, they would be expected to have lower costs and correspondingly higher profits.
To some degree, a large-share business may benefit from all three kinds of relative advantages. It is important, however, to understand from the available information how much of the increased profitability that accompanies high market share comes from each of these or other sources. Businesses with different market-share levels are compared as to financial and operating ratios and measures of relative prices and product quality in Exhibit II. In examining these figures, remember that the PIMS sample of businesses includes a wide variety of products and industries.
Each subgroup contains a diversity of industries, types of products, kinds of customers, and so on. The data in Exhibit II reveal four important differences between high-share businesses and those with smaller shares. The samples used are sufficiently large and balanced to ensure that the differences between them are associated primarily with variations in market share, and not with other factors. These differences are:. ROI is, of course, dependent on both the rate of net profit on sales and the amount of investment required to support a given volume of sales.
Exhibit II reveals that the ratio of investment to sales declines only slightly, and irregularly, with increased market share. The data show too that capacity utilization is not systematically related to market share. On the surface then, higher investment turnover does not appear to be a major factor contributing to higher rates of return.
However, this observation is subject to some qualification. The degree of vertical integration is measured as the ratio of the total value added by the business to its sales. Both the numerator and denominator of the ratio are adjusted by subtracting the pretax income and adding the PIMS average ROI, multiplied by the investment. Vertical integration thus has a strong negative relation to the ratio of purchases to sales. Since high market-share businesses are on the average somewhat more vertically integrated than those with smaller shares, it is likely that investment turnover increases somewhat more with market share than the figures in Exhibit II suggest.
In other words, as shown in Exhibit III, for a given degree of vertical integration, the investment-to-sales ratio declines significantly, even though overall averages do not. Obviously, no individual business can have a negative profit-to-sales ratio and still earn a positive ROI. The apparent inconsistency between the averages reflects the fact that some businesses in the sample incurred losses that were very high in relation to sales but that were much smaller in relation to investment.
In the PIMS sample, the average return on sales exhibits a strong, smooth, upward trend as market share increases. Why do profit margins on sales increase so sharply with market share? To answer this, it is necessary to look in more detail at differences in prices and operating expenses. How can we explain the decline in the ratio of purchases to sales as share goes up?
The decline in the purchases-to-sales ratio is quite a bit less see Exhibit IV if we control for the level of vertical integration. A low purchases-to-sales ratio goes hand in hand with a high level of vertical integration. Other things being equal, a greater extent of vertical integration ought to result in a rising level of manufacturing costs. For example, processing transactions is the equivalent of manufacturing in a bank.
But the data in Exhibit II show little or no connection between manufacturing expense, as a percentage of sales, and market share. This could be because, despite the increase in vertical integration, costs are offset by increased efficiency. This explanation is probably valid for some of the businesses in the sample, but we believe that, in the majority of cases, the decline in costs of purchased materials also reflects a combination of economies of scale in buying and, perhaps, bargaining power in dealing with suppliers.
Economies of scale in procurement arise from lower costs of manufacturing, marketing, and distributing when suppliers sell in large quantities. Still another possible explanation of the declining purchases-to-sales ratio for large-share businesses might be that they charge higher prices, thus increasing the base on which the percentage is figured. This does not, however, appear to be the case.
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