Industry customers are forming buying groups

Symptom: Some of the industry's customers have are forming cooperative buying groups, or the established buying groups are growing.

Implications for the market:

• Generally, the industry's smaller customers are those most likely to join the buying groups. Assuming that happens in the industry, the result will be a change in industry profit dynamics.

  • In a traditional situation where smaller customers buy as independents, they pay higher prices that more than offset the higher cost to serve them. When smaller firms become part of a buying group (and the market is hostile), they may pay prices as low, or even lower than, the larger industry customers — yet their cost to serve may not fall.

  • The decision on how a supplier should deal with a buying group often depends on the degree of control that the group has on its members.

  • Some groups have members who will buy without much concern about the group choice of supplier. These groups can often be ignored.

  • Other groups have very loyal members who buy what the group recommends. In these cases, a supplier who wants the group's volume must sell and service both the group and its individual members.