Customers are making significant changes in their supplier arrangements

Symptom: Customers are making significant changes among their suppliers.

Implications for the market:

A company that would be a leader in its market must gain and maintain the primary position with a significant number of its customers. This is because the difference in volume between any position in the customer relationship and the next position down is dramatic. In many industries, the primary position has more than two times the volume of the secondary, which in turn may have several times the volume of the lower positions.
To maintain a primary position with customers, a supplier must meet the specific needs of each customer segment.
- Customers usually allocate volume to additional suppliers because their primary supplier fails them.
- Typically, customers turn to additional suppliers for product availability insurance (especially in periods of high demand and product shortages), for special products for price points not carried by their primary suppler, for good information on market pricing, or for price leverage.

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.