Startups, earn market share, don't buy it

When businesses are new and customers have not tried its products, discounts can help in building the critical mass

Harsh Pamnani
Updated: Dec 10, 2018 04:18:50 PM UTC
Image: Shutterstock

Startups try to buy market share by giving discounts and running promotions. These tactics, while could show short term results, are not sustainable in the long run. Discount-led growth could bring sales volume, but impacts margins negatively.  In the long run, discounts affect investments in innovation, research and development (R&D), product quality, and more, and the balance between price and quality gets mismanaged. Marketing guru Philip Kotler has famously said, “Don’t buy market share. Figure out how to earn it.”

Let’s have a look at a few strategies applied by popular brands to earn sustainable market share with long term stability:

Build a great product A good product is the foundation of a great brand. A good product can earn a lot of word of mouth and bring in more customers through the pull (attraction) factor. For example,, the world’s largest matchmaking portal continuously works on its product to provide better customer experience.

One of the aspects of better experience is the availability of relevant profiles. For every user there are different preference criteria to find a marriage partner such as caste, education, profession, location, and so on. As and when the analytics team finds fewer profiles for any of the criteria, it runs targeted campaigns to create a database. Presence of sufficient profiles for every criterion attracts more users and creates a virtuous cycle. In addition, once the members get married through, they automatically become the brand ambassadors and send new members through word of mouth.

Establish right partnerships
Partnership is a great way to increase brand awareness and acquire new customers in an inexpensive way. Paper Boat, one of fastest growing beverage brands partnered with Indigo airlines for distribution. Through this partnership, Paper Boat was able to gain the attention of air travellers during their private time. Later, to increase its reach in tier II towns, the company tied up with Indo Nissin Foods (maker of Top Ramen noodles) that has strong distribution network in India. Along with departmental stores like Big Bazaar, the company also partnered with coffee chains, hotels and companies like Google, Facebook and others, to reach out to newer customers.

Focus on niche markets
By looking at big companies, sometimes small companies get tempted to get into multiple things at once. As small companies have limited resources, it is very important to focus them on niche markets and tackle the limited competition. In the Indian e-commerce industry, Amazon and Flipkart are giants that sell products in almost every category. In such a competitive market, rather than focusing on multiple categories like Amazon and Flipkart, FirstCry picked up only the baby and kids category and focused on providing the best in class products and services in its niche. Over time, FirstCry has emerged as India’s largest omnichannel (web, mobile and offline) retailer fulfilling needs of babies, kids and mothers.

Create non-promotional content
Content free from any product or company promotion helps in getting traffic, building brand awareness, reputation for thought leadership and network. Adobe runs that provides the most pertinent content relevant to marketers. Articles come from many sources such as Wired, Mashable, Advertising Age, and other marketing-related sites. also produces its own exclusive content, which is written by business journalists, brands, agencies, consultants, and researchers. By building communities of followers through, Adobe has been able to build a sense of familiarity between the brand and many thought leaders and decision makers in the world of marketing.

Invest in your employees
Brand experience starts internally first and then externally. Employee focus creates a culture passion, integrity, accountability and motivation. Happy and knowledgeable employees help in improving customer experience that leads to external trust in the brand. BookMyShow, India’s largest entertainment ticketing platform, runs many initiatives for the development of employees such as Vedanta classes, yoga sessions and leadership talks. The company has also created a voluntary fund that is utilised when employees need financial help. The company also runs a food program in which senior employees pay some premium and subsidise the food cost for junior employees such as peons, office boys, an so on. This helps everyone eat food at the same cafeteria.

Explore membership model
In membership model, shoppers pay an annual membership fee and have a strong reason to shop from one business. In return, that business gives them a promise of lower prices. In this kind of model, customers save cost and business gets financial security and brand loyalty. Also satisfied customers are likely to do word of mouth, which is the best form of advertising. Costco is the second largest retailer in the world that operates a chain of membership-only warehouse clubs. Costco has a loyal customer base that pays for the privilege of accessing its clubs. In return, Costco offer dirt-cheap prices.

When businesses are new and customers have not tried its products, discounts can help in building the critical mass. But if marketers think about bringing customers through discounts every time, then they bring in revenue with extensive cost that makes businesses unsustainable. On the other hand, when marketers focus on earning the market share, they focus on creating the right perception about the value that the customer can expect to receive if he makes a purchase from a business. Based on the perceived value, a customer believes worth of the product, pays premium and does word-of-mouth.

Harsh Pamnani is author of the book - Booming Brands
(Views expressed are his personal and don't necessarily represent any company's opinions)

The thoughts and opinions shared here are of the author.

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