Analysis of the impact of market strategies on profit (Profit Impact of Market Strategy, PIMS) is the determination of the relationship between key strategic decisions of the business and its results. The analysis is based on the principle that the effectiveness of any organization is determined by factors common to all industries. The accumulation of empirical data for analysis was carried out as part of a large-scale project initiated by the General Electric Corporation in the 1960s.
In 1975, the Institute for Strategic Planning became the main executor of the project. The Institute has created a database with information on the performance of various companies in strategic business areas.1 The study was supported by nearly two hundred of the largest companies in the United States and Western Europe, which provided information on the results of the implementation of strategies in various strategic business areas. Information was accumulated for 100 items, including market environment, competitive environment and operating results. Research results confirmed the relationship between market share and profit, as well as the relationship between production costs and company experience.2 However, further development of research in this area showed that a company can simultaneously have both a large market share and a level of production costs above the industry average, as a result of which the profitability of its operations is lower than that of competitor.3
In addition, the digital development position of the market leader is not sustainable and it is not always clear who will take the first place tomorrow. Thus, there is no relationship between ROI and market share in an industry with a rapidly changing competitive environment.4
A number of interesting findings were published in 1991 by R. Alliot and J. Patin. 5 They confirmed the main conclusion of the PIMS project that companies with a high market share have high profitability. Decisive market action is profitable. Companies that provide better quality products than competitors wins the competition and gains a higher market share.
In the article "Does Market Share Really Matter?" by Chussil, M.J. it says there is no evidence that a high market share is the reason for a high ROI.6 It is possible that companies with high investment performance are able to capture a higher market share than their less efficient competitors. Moreover, maintaining a market position requires higher capital investments: as shown by the project data, the dominant players on the market spend significantly more money on investments than their smaller competitors.
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In-depth research has shown that there is a relationship between market share and return on investment. However, this connection is not as obvious as it might seem at the beginning of research. Sticking to a strategy to take a large market share can lead to collapse. The main conclusion of the PIMS project is that when developing business strategies, there is no universal recipe that would be suitable for all industries and companies.
- 1 Lubatkin, M. and Pitts, M. PIMS: Fact or Folklore?, J of Business Str. Vol. 3, 1982-1983. P. 38-43.
- 2 Delombre, J. and Bruzelius, B. Importance of Relative Market Share in Strategic Planning –A Case Study, Planning, Vol. 10, August, 1977. P. 2-7.
- 3 Allessio, H. Market-Share Madness, J. of Business Strategy. Vol. 3, 1982-1983. P. 76-79.
- 4 Leontiades, J. Market Share and Corporate Strategy in International Industries, J. of Business Strategy. Vol. 5, 1984-1985. P. 30-37.
- 5 Allio, R.J. and Patten, J. The Market Share, Excellence Equation, Planning Review. Vol. 19, September-October, 1991
- 6 Chussil, M.J. Does Market Share Really Matter?, Planning Review, Vol. 19, September-October, 1991. P. 31-37.