An interview and discussion with Pat O'Keefe, former CEO of Watts Water Technologies
“I believe market share drives very little. Because five times in my career I got to buy the competitor, and in every case my management team overestimated our market share and their team overestimated their market share. Everyone overestimates their share. I am a harsh critic of market share.”
Those are the words of a plain-spoken Pat O’Keefe, retired CEO of Watts Water Technologies, who spent a decade growing his company through smart acquisitions and pricing strategy. Today Watts has net sales totaling more than $1.4 billion.
During his tenure, he saw pricing – not market share – as a reflection of value and market conditions. When necessary, he would raise prices to what he and his management team felt was appropriate – even if it meant losing share points.
“At Watts we took the market lead on pricing, generally pushing pricing increases according the cost of raw materials,” he says. “We would be the first to move and the rest of the industry trailed us. A number of our competitors would try to lower prices [to capture some share as a short-term gain] but eventually they would have to follow our lead.
“I knew,” he adds, “that in fact we were not the market leader in terms of market share.”
Share, O’Keefe concluded, can distract and impair management’s views of its competition, negotiation prowess, and even overall pricing strategy. Along those lines, he offers executives two other pieces of advice:
Ask your management team to challenge share estimates very carefully. “I nearly always went outside Watts to independently verify share,” he says. Even with these precautions, O’Keefe believes that easy access to internal estimates versus the nearly impossible access to a rival’s estimates certainly biases market share in favor of the home team’s own thinking. That is why O’Keefe strongly urges adjusting downward your team’s share estimate. “Don’t trust your management to give you accurate market share data,” he warns.
Beware of negotiation illusions. One plus one does not necessarily add up to two in terms of market share growth, according to Pat O’Keefe’s experience acquiring competitors and folding them into the Watts organization. Don’t get fooled by the often cited term “synergies,” promising a great gain in market share, as well as cost savings via acquisition.
"I have [acquired and merged companies into Watts] a number of times,” says O’Keefe. “The harder part of the acquisition equation is that you discover that the acquired company’s particular product may have had a better reputation than yours in the marketplace, or vice versa. As a result, you discover the buyers of those products just don’t switch."
"In the plumbing industry,” he explains, “you have habitual buyers who learned from their fathers or uncles to buy the Watts brand or another brand. So you have psychological barriers [among your client base that will prevent you] from achieving cost reductions. The acquirer tends to overestimate the savings they get by eliminating product lines – even though you do get the cost savings by reducing overhead."
Market share is just one measure of success and not a very good one, according to O’Keefe. He advises management to focus instead on value as reflected by margins and profitability, dynamics far more critical to success than pure share growth.