Customer Decisions on Benefits
Capsule: The requirements for each role in a key customer relationship apply to all potential suppliers. Often, though, only a few suppliers can fill the most important roles.
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- Video #66: Overview of Segments Part 1: How to Look
- Video #59: Roles in Customer Relationships
- Video #25: Short Explanation of Customer Buying Hierarchy
A customer expresses an important concern, and need, when he seeks more than one supplier for his relationship. (See Symptom: “Leaders Stress Quality to Offset Competitors’ Lower Prices.”) In many cases, customers and their suppliers are not exclusive. That probably is no surprise in a world where half the marriages fail. It does present an opportunity, though. (See Perspective: “The Tallest Dwarf.”)
Customers are usually much clearer than are their suppliers about their expectations of each supplier in their relationships. You must see with the eyes of the customer in order to improve your position in a customer relationship and to reach your innovation goals. One goal that the Company might have in its product and service innovation program is to convince its existing customers that they do not need other suppliers than the Company. Another goal might be to exploit the customer anxieties that impel other industry customers to insist on multiple suppliers in their relationships. In either case, the Company needs a thorough understanding of the benefit demands of its target customer segments for key relationship roles and of how the Company performs to those demands.
- 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
Role Requirements Questions
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Analysis 9 |
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Analysis 13 |
- For each of the key target customer segments, what are the reasons that customers require more than one supplier in their relationships? (Analysis 9)
- Why is the Company chosen to fill each role in its target customer segments? (Analysis 13)
- Does the Company’s current product/service package lack any benefit that the target customer roles require in today’s market?
If the Company ranks number three or lower in market share in the industry, it may wish to conduct a tier analysis to reduce its marketing and sales spending on customers who would not buy from the Company. The analysis determines whether the larger customers in the market have put the industry’s suppliers into tiers, with the intention of buying only from the highest tier.
Industries often see customers tiering suppliers in predictable patterns. (See Perspectives: “Rare Mettle: Gold and Silver Strategies to Succeed in Hostile Markets” and “Staying Alive in a Hostile Marketplace.”) The first tier suppliers occupy Primary and Secondary role relationships with the industry’s Very Large and Large customers. Second tier suppliers fill Tertiary or lower roles with these larger customers. The second tier suppliers, occupy Primary relationships with the industry’s Medium and Small customers. A second tier supplier aspiring to supply the Primary or even Secondary role with a Very Large customer is unlikely to succeed. That supplier may spend marketing and sales costs with those customers with little to show for the expenditure. Most third tier suppliers hold Tertiary roles with Larger customers and secondary roles with Medium and Small customers.
Primary Supplier Role Examples »
Secondary Supplier Role Examples »
Tertiary Supplier Role Examples »
More Role Requirements Questions
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- What are the key role requirements to serve the largest customers in their primary and secondary roles?
- Do any competitors in the market have a disproportionate share of these primary and secondary relationships with the largest customers? By disproportionate we mean that these competitors have a higher share of these relationships than the share they have in the market as a whole. If any such competitors exist, the Company would consider them to be tier one suppliers.
- Into what tier of competitors does the Company fall?
- In what positions on the size/role segment matrix does the Company’s tier have a disproportionate share of industry sales volume?
- What is the probability that the supplier in a lower role in a customer relationship would move to a higher role in the event of an incumbent supplier’s failure? (Analysis 22)
Basic Strategy Guide Users Return To: Step 3
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