Analysis 16: Positive Volatility Across the Industry

PURPOSE: This analysis tells the company how much volume is available to change suppliers during a given period. Unless the conditions in the industry change, the company can plan on that percentage of volume moving during a similar planning period. This total volatility in the market is the volume base available for the company to exploit to raise its share.

APPROACH: To achieve this analysis, the company should conduct a sample of all customers in the marketplace to determine the customers who change suppliers and the amount of volume they change in each change event. The analysis focuses on positive volatility, that is, Get In and Increase Use, for the industry as a whole. The company then scales up these sample results to estimate positive volatility in the total industry.

In a fast growing industry, the period of study probably should be no longer than one year. Slower growing industries might use 3 year periods. The analysis covers both the units of volume moved, as well as the percentage of customers who moved. The units moved are further divided into those units that are the result of a Get In event and those that are the result of an Increase Use event. This gives a further definition to the type of volume available to competitors in the market.

The company could also conduct a similar analysis for negative volatility, that is, Decrease Use and Get Out events. Unless there are many customers entering or leaving the market, the negative volatility percentage will be about the same as that for the positive volatility.

As the company conducts an analysis of negative volatility in the industry, it prepares to examine its own performance on negative volatility compared to the industry as a whole.

Volatility Examples >>

Return to Diagnose Segments: Industry Volatility

Analyses:

• Analysis 17: Share Shift Across the Customer Size and Role Segmentation Matrix

• Analysis 18: Positive Volatility by Position

• Analysis 19: Positive Volatility Index by Position

• Analysis 20: Win and Fail Definitions

• Analysis 21: The Cause of Volatility

• Analysis 22: Likelihood of Share Gain from Lower Position When Higher Position Fails

• Analysis 23: Competitor Share Change

• Analysis 24: Competitive Vulnerability

• Analysis 25: The Expected Gain Index

Symptoms and Implications: Symptoms developing in the market that would suggest the need for this analysis.

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

• Large customers are getting higher discounts

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

• Distribution channels are undergoing a shakeout

• Customers are consolidating their purchases

• Share is tougher to shift

• New entrants are penetrating the distribution channels of the industry's leading competitors

• Most share shifting in the industry seems to be coming from volume gained within existing customer relationships rather than from new customers

• The industry leaders are losing share

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

• "Building On Customer Volatility": In one crucial respect, hostile markets are actually more stable then non-hostile markets. During market hostility, share shift slows. (1995)

• "Failure Shifts More Share Than Success": For a company trying to gain share in a mature market, nothing succeeds like failure – the failure of a competitor. (1991)

• "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. (1995)

• "The Commoditization of Scale": Scale is a commodity traded every day on the stock exchange. Scale alone no longer guarantees a company an advantage in the market place. (1988)

• "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. (1994)