THE TALLEST DWARF
by Donald V. Potter
A supplier’s goal is to take advantage of any market volatility to take share wherever possible. Doing that requires understanding what customers need. What are they shopping for?
The “Eliminator”
Shop ’til you drop. That phrase usually expresses certain exuberance, even passion, for the shopping process. But consider what the business customer has to do in order to make his buying decision. Starting from scratch, a customer has to:
- Learn which suppliers might meet his needs.
- Understand the differences among these suppliers.
- Evaluate whether each supplier can solve his problem
- Check the supplier’s reputation for reliability and durability.
- Assess the product/service availability.
- Determine the quality of after-sales service.
- Compare prices across all competitors.
The customer must complete these steps not just once but several times, in order to fill the different roles of primary, secondary, and tertiary supplier. Often there are ten or more potential candidates for each of those roles. Now “shop ’til you drop” suggests not exuberance but exhaustion.
“The buying decision becomes an exercise in finding the tallest dwarf”
To make this complex task manageable, a customer simplifies. We have already explained in earlier publications that a customer makes his ultimate buying decision on the basis of a hierarchy of values: function, reliability, convenience, and then price. This refined decision process is applied, however, only to suppliers who make the “short list” of three to five serious candidates. First, a customer will screen all possible suppliers with an eye to eliminating the vast majority so that he can concentrate his full attention on those most likely to meet his needs.
The buying process, then, is a game of elimination. It is an exercise in finding the tallest dwarf-the supplier who has the fewest shortcomings. This exercise has two phases. The first phase eliminates all but a few serious potential suppliers. The second eliminates all but the final, tallest, dwarf.
We call the first elimination phase The Role Reason Eliminator.
What Do Customers Want?
In finding suppliers to meet their primary, secondary, tertiary, and other roles, customers tend to look for benefits that are required for each role. What are those benefits?
Primary Suppliers provide most of a customer’s volume, and they are the suppliers on whom customers most rely. Candidates may be eliminated if they do not:
- Enjoy a relationship of trust with the supplier. Trust may be based on a strong brand name with end users, which creates customer pull through channels, or on a general reputation as a fine supplier. Trust may also be an established relationship developed over time while the supplier served in a less significant role, such as a secondary or tertiary supplier.
- Offer a specific capability. This might be, for example, the ability of a supplier to provide nationwide service for a product. Or it might be a specific feature, such as a sophisticated electronic information interchange systems or even the ability to do extensive training on how to sell the product.
Secondary Suppliers supply less volume and serve primarily as insurance against any failure on the part of the primary supplier. In general, they must be able to provide at least one of the two benefits.
- Guaranteed product supply in the event of a strike, a fire, or some other shortage with the primary supplier.
- An effective check on the ability of the primary supplier to set price with abandon. In many industries the secondary supplier must be seen be seen as a virtual “peer” of the primary supplier. When this “peer” offers a price at or below that of the primary supplier, the secondary supplier sets a price ceiling.
Tertiary Suppliers usually have a very small part of the customer’s product volume. They typically have the role because they fill one of two needs:
- A special product not offered by either the primary or the secondary supplier.
- Price Leverage. The tertiary supplier may be a company that offers slight discounts for products similar to those of the industry leader’s. The customer can then use that lower price to force lower pricing on his primary and secondary suppliers.
Gaining a Toehold
“A potential supplier must focus on the role the customer is offering”
In an ideal world, a suppler candidate would strive immediately to fill the position, which offers the most volume and greatest opportunity for growth and profitability. But, especially during market hostility, the primary role is seldom open, especially for non-incumbent suppliers. A potential suppler needs to focus on filling, not the role that he would like to supply, but he role that the customer is offering. A good understanding of these role positions and requirements is important in enabling a company to use its marketing resources efficiently as it seeks additional customer volume and market share.
Closing Thought
Especially during market hostility, a customer is most likely to look for a new key supplier from within its current fold. A company who is already successfully fulfilling a lesser role as secondary or, occasionally, tertiary supplier, is best positioned to take advantage of a primary supplier’s failure and move up to that role.
(Note: This Perspective was written in the context of the economy in 1995. While some of the companies may have changed their policies or indeed no longer exist, the patterns they exhibit still hold today.)
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Analyses:
Symptoms and Implications: Symptoms developing in the market that would suggest the need for this analysis.
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