Conventional wisdom holds that market share drives profitability. Certainly, in some industries, such as chemicals, paper, and steel, market share and profitability are inextricably linked. But when the authors studied the profitability of premium brands brands that sell for 25% to 30% more than private-label brands - in 40 categories of consumer goods, they found that market share alone does not drive profitability. Instead, a brand's profitability is driven by both market share and the nature of the category, or product market, in which the brand competes. A brand's relative market share has a different impact on profitability depending on whether the overall category is dominated by premium brands or by value brands. If a category is composed largely of premium brands, then most of the brands in the category are - or should be - quite profitable. If the category is composed mostly of value and private-label brands, then returns will be lower across the board. Developing the most profitable strategy for a premium brand, then, means reexamining market share targets in light of the brand's category. That is, managers must think about their brand strategy along two dimensions at the same time. First, Is the category dominated by premium brands or by value brands? Second, Is the brand's relative market share low or high? The authors have devised a matrix using those two dimensions to help managers map the position of any premium brand within one of four quadrants: hitchhiker, high-road brand, low-road brand, and dead-end brand. Each quadrant has different implications for a brand's profit potential. And each requires a different strategy.
