Understanding Economic Cycles Is the Key to Market Share Growth

By J Schneider, VP, Strategy

Your business may have been up 15% last year, but so was everyone else. This fact can be lost as companies focus on supporting their own growth and continuing to invest in operations to keep up with demand. For most industrial manufacturers in the United States, 2018 was a strong year. Ten years after the great recession of 2008, it felt a long time coming to see such strong performance across many industrial segments. Most saw increasing profits and top-line revenue which has boosted capital investments from shareholders. However, understanding the market with a view which can allow industrial firms to target specific customer types, penetrate new end markets, and compete stronger for market share has been a challenge. The measure for continued growth and success will need to include gains in market share as well as profit and top-line revenue.

Competitive Intelligence and Understanding Your Customers

Most industrial manufacturers today are experts in their own business but often lack the knowledge of understanding why customers are behaving the way they are. Why are they really buying my product or even my competitor’s product? Do firms know or suspect the reason? Competitive intelligence is historically viewed as gaining an understanding of how much share they own and what products compete with yours. It is rarely a case of understanding why customers purchase your product vs. your competitor’s product.

Ask your management team to highlight the top three reasons you won your last major customer. Was it price, location, product innovation, availability, or all of the above? More importantly, ask the management team to highlight the reason you lost an opportunity to your competitors? If the answers become all of the above or are the same generic ones you have heard for a while, typically the firm really does not know and it can be difficult to proactively adjust your business in a changing market. This is the first red flag in a firm’s ability to manage demand for their products in a changing market, either up or down.

Things Are Looking Up: Understanding Accelerated Phases

When the market is up, and products are in demand, everyone is growing. If your industrial company looks at your market share as a piece of the pie, you may be viewing your increase in business as taking share from your competitor vs. the whole pie becoming larger in size. Within this pie is a complex set of factors including segments, external market forces, supply chains, distribution, and buyer needs and behaviors. For your firm to be rewarded by your customers, more often than not, their business is also improving.

Understanding your market is more than understanding why you’re growing and why your competitors may be growing but just as much about understanding why your buyers are in a position to purchase or make an investment in your product or brands. What is occurring in their business today for them to achieve growth? The levers you decide to pull to increase your market share and capture new customers is as important as understanding how to help your customers grow their businesses.

Over the last two years, industrial manufacturing has been in an accelerated phase according to the December 2018 ITR Economics Trends Report. With the exception of a few sectors, most in 2018 have seen either accelerated growth or recovery. If your sector is forecasted to continue to grow, your objectives are focused on production capacity, resource availability, and continued penetration of end markets to take share from competitors. If your sector is expected to decline or soften over the next period, your strategy may include diversifying your end market to growth sectors, focusing your efforts in sectors where you can win, or acquiring adjacent firms which are well positioned to capture market share. In either scenario, managing your market conditions, forecasts, and competitive behavior will be critical to your ability to proactively manage future changes in the end markets you serve.

Identifying The 4 Economic Growth Cycles

One of the most important factors in developing your strategic growth plan is understanding where you are in the cycle of your sector. ITR provides a simple model which allows industrial manufacturers to identify their core market and provide guidance on where their firm may be within the current economic cycle. Building strategic growth strategies can vary greatly if you are in the beginning of an accelerated cycle vs. entering a declining or recession cycle. For most firms, here are some areas where you can focus depending on what cycle you are currently in:

• Recovery: If you are heading out of a recession or a reversal of a prior declining sector, look to create new marketing plans, increase product, and add additional resources to capture market share.
• Accelerated: If you are entering the accelerated phase consider aligning your budgets, improve labor productivity, increase external marketing, and accelerating innovation.
• Slowing Growth: If your marketing is beginning to show signs of slower growth which is not attributed to a specific non-typical event, consider focusing your spend on market growth activities, evaluating your offering, and continuing to innovate in all areas of your business. Continue to look outside of your segment for accelerated markets either organically or through acquisitions.
• Recession: If your market hits a recessionary state and your firm has been caught in this condition, focus on the core segments where you have had success, look at production efficiencies, and continue to invest in areas of your business where you can differentiate from the market.

Regardless of which cycle of growth your firm is in, the key to success is developing a strategic plan based on where you are and what the next period is expected to bring to capture additional profit, revenue, and market share. Being proactive will greatly improve your business performance if you suddenly find yourself in an accelerated or declining market as each condition can be devastating to a company without a strategic plan.