BASIC STRATEGY GUIDE: STEP 4

Activity One (Steps 1-12):
Segment customers, both by size and by need, to identify targets for the Company.

Step 4: Place the industry’s total purchase volume on the Customer Size/Supplier Role matrix

• Audio Tip #18: Introduction to Step 4 of the Basic Strategy Guide

• Audio Tip #27: How Do I Use an Index?

What:

Array the total market’s purchase volume into a matrix. Each position on the matrix is a combination of Customer Size and Supplier Role. The total industry market share available at each position on the matrix is a segmentation of the industry based on the sizes of customer relationships.

• Audio Tip #14: Size Segments on the Customer Size/Supplier Role Matrix

Why:

This matrix portrays customer size segments more accurately. A company may fill only one role with any customer. Four positions on the matrix make up the Heart of the Market, which is where most of the market’s volume resides: Primary and Secondary positions with Very Large and Large customers. The Company must be strong with one or more size segments in a Primary role relationship.

• Audio Tip #15: Using the Customer Size/Supplier Role Matrix

What to Watch For:

• More than three Supplier Roles often indicates several regional markets where customers in each region have two to three suppliers. When these relationships and regions of the customer are combined, there could be five to eight suppliers in the customer’s total relationship.

• Audio Tip #16: The Implications of More Than Four Suppliers in a Customer Relationship

• The industry, or any customer size category, may be either consolidating or de-consolidating purchases. This presents both risks and opportunities.

• As industries mature and especially as they become hostile, the industry’s sales volume consolidates toward the Heart of the Market.

• Audio Tip #17: The Heart of the Market

Action:

Concentrate the Company’s analyses of the size segments according to their greatest potential volume for the Company. Complement this set of priorities with the results of the next step.

• Self Test #4: Creating the Customer Size/Supplier Role Matrix

• Worksheet #4: Creating the Customer Size/Supplier Role Matrix

More Information Size of Roles on the Advanced Site

For helpful context on this step:

Videos:

• Video #60: Industry Customer Size/Suppler Role Matrix

• Video #61: The Heart of the Market

• Video #63: Core Customers Part 1: Defining Core, Near and Non-Core Customers

• Video #64: Core Customers Part 2: Finding Core Customers in Your Marketplace

• Video #66: Overview of Segments Part 1: How to Look

Perspectives:

• “Which Customers Matter Most?”

• “The Real Reason Market Share Matters”

Symtoms and Implications:

• Medium sized customers are under pressure from both their larger and smaller peers

• Some companies in the industry have begun to replace their direct sales forces with independent distributors (or vice versa)

• The market structure is changing as shares shift in the channels of distribution

• Customers are making significant changes in their supplier arrangements

Guide Index

NEXT: Basic Strategy Guide Step 5