Are U.S. Managers Superstitious about Market Share?
Superstition has always had a big impact on human behavior, sometimes yielding macroeconomic effects for even the most industrialized societies. An example of the effects of superstition is the rate of Japanese births from 1960 to 1990 (see Figure 1). A general, steady decline is evident in recent decades. But what jumps out is the single-year 25 percent drop in 1966. Such a sudden dip and recovery in birthrates meant all kinds of problems for companies selling baby cribs in 1966 or bicycles in 1972, for colleges and universities in 1984, and for employers in 1988.
Why did the market plunge 25 percent for only one year? In much of Asia (where Chinese influences are strong), each year is associated with one of twelve animals. For example, 1996 is the year of the Rat. Both 1990 and 1978 were years of the Horse, as was 1966. In Japanese culture, there is a traditional belief about heigo, or the year of the Fire Horse, which occurs once every sixty years, the last in 1966. According to this long-standing superstition, a female born in a year of the Fire Horse is destined both to live an unhappy life and to kill her husband if she marries.1 Judging by the birthrate that year in Japan, superstitions about the year of the Fire Horse deterred people from having children. The relevant point here is that superstitions can substantially affect behavior on a macroeconomic scale in industrialized countries.
Many U.S. managers are superstitious as well, particularly about business strategy. The false notion that higher market share causes higher profits has had a huge impact on companies’ performance, the associated welfare of employees and shareholders, and society in general. Unfortunately, corporate goals and executive incentive systems are often partially based on market share achievements. Business journalists evaluate companies by describing them in terms of market share, with the clear implication that bigger is better.2 And, every semester, marketing and strategy textbooks lead business students astray.3
The False Link between Market Share and Profitability
Recently, criticism has swelled against the presumed causal relationship between a business’s market share and its profitability. Critics question the extent, and perhaps the existence, of this traditional tenet of strategic management thought.