Porsche: David versus Goliath

07 October 2022

This week, Porsche became the largest listed car brand in Europe, dethroning parent company Volkswagen. It shows once again that a brand does not always have to be the largest in its market to be successful. The battle for greater market share is one of the biggest myths in the business and marketing world.

For many years, the small 'premium' Porsche brand has been very profitable and even makes the biggest contribution to the result of the entire Volkswagen Group. Porsche's profit margins can only make many other car brands dream. Porsche's recent IPO was a bright spot for investors in turbulent economic and financial stormy weather. In the footsteps of a.o. Apple makes it clear to Porsche that a brand does not have to be the largest in its market to be very profitable.
However, the battle for market leadership is considered an absolute mantra in many business and marketing plans. Until the late 1980s, growth in market share and market leadership were the main goals of a company and they were considered prerequisites for profitability and success. These findings were reinforced by, among other things, the publications of leading academics in the authoritative Harvard Business Review. Those articles confirmed the popular idea that entrepreneurship equals waging war and that the only goal is the elimination of the adversary. In 1989, Bruce Henderson, founder of the Boston Consulting Group, put it nicely in Harvard Business Review: 'Darwin is probably a better guide for entrepreneurs than economists.'

But since then, scientific research has shown that profitability is not a direct result of market share. Researchers at the Wharton School (University of Pennsylvania, US) investigated the extent to which companies took initiatives to steal market share from their competitors. The results were compared with the ROI (return-on-investment) of these companies over five nine-year periods between 1938 and 1982. The correlation turned out to be negative. In other words, there is no co-relationship between the market share and the profitability of an undertaking. Companies with profit maximization as their first goal, on the other hand, did achieve a better ROI, it turned out. In other words, companies that only have an eye for competition and that try to be the biggest in their market risk jeopardizing their profitability and jeopardizing their long-term future. More recent research confirms these findings.

That doesn't mean that companies shouldn't pay attention to what their competitors are doing. But the first goal is not to be bigger than the competition, but to be profitable yourself. It is a hard lesson in these times of crisis. It will be companies with a strong financial base and high profitability that will survive. A well-stocked 'war chest' is the strongest weapon against the crisis, not the market share. The size of the company, and its market share, do not really matter, according to scientific research. Both small and large companies can go bankrupt. Only the most profitable, who have built up the necessary reserves, will get through this stormy weather best. And as Porsche's success shows, even 'small' in the market can sometimes be very 'big' at the fair.