Customers are consolidating their purchases

Symptom: Customers are consolidating their purchases.

Implications for the market:

  • In most hostile markets, customers buy from several suppliers, asking each supplier to fill a specific role different from that of any other supplier. Typically, these roles are: Primary Supplier, Secondary Supplier, and Tertiary Supplier.

  • As volume consolidates, it becomes especially important for a supplier to fill the most important role–the role of Primary Supplier if at all possible — because the resulting volume is essential to keep the supplier's costs down and profitability up.

  • But to win or hold this primary role with the customer, a supplier must understand what the customer requires of that position and focus its business proposition on filling that need. And these needs change as customer segments change.

  • In such a market, a company must first improve its position with its best customers and avoid any volume loss with them.

Recommended Reading
For a greater overall perspective on this subject, we recommend the following related items:

Analyses:

Perspectives: Conclusions we have reached as a result of our long-term study and observations.

  • "Finding the Open Door"
    Volatility is the movement of volume from one supplier to another. A company can not gain volume unless customers are willing to make a change in suppliers. Volatility has special rules in hostile markets.

  • "The Big Slice of the Pie"
    The head of one industry leader explains his company's insistence on being a key supplier to each of his customers: "The guy with the big slice of the pie doesn't go hungry." The workings of the typical hostile market provide solid support for this philosophy.

  • "Use Subtle Strategy in Tough Markets"
    A hostile market operates differently than a market with "normal" competitive conditions. But as difficult as a tough market can be, it can also present an astute management team with an unusual opportunity.

  • "Which Customers Matter Most?"
    Average customer profitability differs dramatically in non-hostile and hostile markets. Does the relative importance of one customer versus another change as well? The answer is less evident than many business leaders believe.