PIMS                                                                                                         Profit Impact of Market Share

PIMS began as an internal project at General Electric (GE) in 1960. Fred Borch, then a marketing vice-president and later the CEO, initiated a project to quantify what factors led to success in GE´s diverse businesses, from toasters to turbines, with sales already at $4 billion and expected to more than double in a decade. (They did.) The original computer model, which took five years to develop, was named PROM: profitability optimization model. The data include information on markets, competitors, quality, structure, environment and financial performance. Cross-sectional regression analysis is a favored technique for verifying an hypothesis. A key initial finding was that market share was a major driver to profitability.

From 1972 to 1974 the on-going research was organized as a project at Harvard Business School, giving birth to the Strategic Planning Institute, SPI. At the beginning of 1974 the PIMS project was organized as an independent non-profit organization, the Strategic Planning Institute. By the middle 1980s the PIMS model had 400 items of information drawn from a minimum of four years of operative and competitive information on 2,700 strategic business units (sbu´s). On the basis of this research, SPI could then run scenarios for clients by entering different assumptions into the PIMS computer model. The website for SPI is: www.pimsonline.com.

What does the PIMS "black box" say will happen if I raise my advertising budget by 10%, versus doubling it?  When do I reach the point of diminishing returns? Inferences are drawn, to present a hypothetical example, from 300 sbu´s of this size in that market. When the economy turned down, were the advertising budgets increased, decreased, or maintained?  What was the outcome X months, Y years later?

The PIMS research indicated that the two key factors to profitability are market share and perceived quality.  Perceived quality is, in turn, a key driver for obtaining market share.   Objective, scientifically tested quality is one thing, the perception of the customer of that quality is another.  It is the latter that counts.  Build the best Widgit in the business, but send it to the customer in toilet paper and late.  He does not perceive your quality as great.

Build the best Widget in the business with beautiful packaging, promptly delivered, but the salesman was completely ordinary, just an order taker and not a "solution seller" at all.  Again, the customer is far less likely to perceive the quality as great. In other words, the total customer experience is what determines the perception of quality.

There is more about PIMS and an interesting study on the subpage "Start--up (EBO) Strategy" on the menu on the right.

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