Analysis 9: Purpose of Roles Other Than Primary

The volume in the Secondary Role in the industry represents all the sales that suppliers in the Secondary Role in the customer relationship sell to all customers in the market. The sum of the bars is 100%. 66% of all the sales by Secondary suppliers to customers are made in order to provide those customers with backup supply on the key product the customer buys. This back up supply insures the customer that he will be able to get the product even if the Primary supplier is unable to deliver that key product. 12% of the volume sold by Secondary Role suppliers to all customers in the marketplace is there to provide the customer with back up supply on a special product. These special products are less important to the customer than the key product. This Secondary Role supplier volume is there to insure the customer that he will be able to get his special product even if the Primary supplier is unable to deliver it.

The set of horizontal bars on the right hand side of the exhibit represents the reasons for the existence of Tertiary suppliers. The sum of the bars is 100%. Tertiary suppliers are those industry competitors who rank third in customer relationships in the industry's total sales. The bars represent the percentage of all sales by Tertiary suppliers that is associated with each reason for the Role. 36% of all Tertiary supplier sales to customers provides the customer with price leverage. Price leverage allows the customer to use the low price of the Tertiary supplier to convince his Primary and Secondary suppliers to reduce their prices. 23% of the total sales of the Tertiary suppliers in the market provide back up supply to the customer for the customer's key product in the marketplace. This arrangement insures that customer that he will be able to receive his key product even if the Primary and the Secondary supplier are unable to deliver the product.

• Video #59: Roles in Customer Relationships

• Video #25: Short Explanation of Customer Buying Hierarchy

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

PURPOSE: This analysis helps the company understand why a customer would need to have more than one supplier in his relationship.

Purpose of Roles: Industry Examples »

• Audio Tip #10: Why Would a Customer Need More Than One Supplier

• Audio Tip #11: Price Information Compared to Price Leverage

• Audio Tip #12: Supplier Roles and the Customer Buying Hierarchy

• Audio Tip #13: The Size of Supplier Roles

• Worksheet #3: Defining the Purpose of Roles

APPROACH: Through the sales force, the company can estimate the reasons, and the importance of those reasons, for other roles besides the primary role. If the company has a good sample and good insight into how customers think, it can develop percentages of volume attributable to each reason. If not, the company can estimate the priority of these reasons to establish a ranking.

A company in a primary role relationship with the customer would try to alleviate the problems implied by the customer's needing to have secondary and tertiary suppliers. If it can ease these problems, the company might take over more of the customer's relationship. On the other hand, a follower company would seek to exploit these reasons and problems in order to get into a customer relationship and build upon it from something other than the primary position.

Each role reason implies that the supplier in the role above the role being examined could not, or would not, offer this benefit to the customer. For example, a customer seeking a back-up supplier in a secondary role position is signaling that his primary supplier has not given him enough assurance that the supply will always be available when the customer needs it. Roles that are secondary and below always imply a shortcoming in the benefits offered by the primary supplier.

In order to be most effective, the statement of these shortcomings should be as concrete as possible. For example, a customer may cite “responsiveness” as the reason he uses a secondary supplier. The company will be better able to take action to gain share in the secondary role or to protect share in the primary role if it defines "responsiveness," for example, "three-day order cycle time on special orders" or "willingness to add features to a standard product".

Supplier Roles Examples >>

• Self Test #3: Defining the Purpose of Roles

Return to Diagnose Products/Services: Role Requirements

Return to Basic Strategy Guide Step 3

Analyses:

• Analysis 10: Size and Role Segmentation Matrix

• Analysis 11: Company Compared to Market in Volume by Role

• Analysis 12: Company Volume Index on the Size/Role Matrix

• Analysis 13: Company Role Reasons

• Analysis 14: Customer Size Segments' Allocation of Volume By Role

• Analysis 15: Average Unit Volume By Position

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

• Customers are consolidating their purchases

• Customers are adding suppliers because incumbent suppliers failed them

• Customers are taking on more suppliers because shortages have appeared

• Customers are making significant changes in their supplier arrangements

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

• "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. (1995)

• "Rare Mettle: Gold and Silver Strategies to Succeed in Hostile Markets": Managements of winning companies have common themes for success in hostile markets. They each follow five basic themes. While virtually all successful companies are aware of these themes, their implementation differs according to their market position at the onset of hostility. (1988)