Analysis 25: The Expected Gain Index

PURPOSE: This analysis quantifies the relative probability of gaining volume from strong and weak competitors.

APPROACH: An index is a measure of the performance of one entity relative to another entity. The index is the ratio of the performance of the first entity divided by the performance of the second and then multiplied by 100. An index above 100 indicates that the first entity has a higher result than the second entity. An index below 100 indicates that the first entity has a lower result than the second.

The company begins with the unit volatility for the customer segment. For example, above, we assume the Large customer segment had a 10% volatility, meaning that 10% per annum of the Large customer segment's volume changed suppliers in each year. The company then calculates the positive volatility that exists in the market when the incumbent shareholder is a strong competitor. This means that a strong competitor held a position in the customer relationship at the beginning of the period. During the period, the strong competitor ceded share, either through a failure or through a competitor win, to another competitor. The company would then calculate the percentage volatility taking place with strong competitors as incumbents. In the example above, the other suppliers gained annually 2.5% of the strong competitors' volume with Large customers.

The company would conduct a similar analysis using weak competitors as the incumbents. In the example above, the weak competitors would cede 17.5% of their volume yearly to other competitors. This analysis also assumes a Large customer segment volatility of 10% per annum.

The company would use these relative probabilities of share movement to plan its sales programs to potential Get In and Increase Use customers. Obviously, in a case such as the one above, increasing the calling frequency on customers of weak competitors is more likely to produce incremental volume than if the company would focus its selling efforts on customers where strong competitors are incumbents.

Return to Diagnose Segments: Competitor Weakness

Analyses:

• Analysis 16: Positive Volatility Across the Industry

• 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.

• Some customer groups are growing faster than others

• Some companies in the industry have begun to replace their direct sales forces with independent distributors (or vice versa)

• Fast growing competitors focus on the industry's large customers

• 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

• Share is tougher to shift

• The industry leaders are losing share

• While still growing some competitors are losing share

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

• "Staying Alive in a Hostile Marketplace"
  A few companies survive and even prosper during periods of hostility. How do these companies avoid being the victims of tough market conditions? (1994)

• "Is Bigger Really Better?"
  In the average large industry, the market share leader is only slightly more likely to lead the industry than is any one of the next three competitors in the industry. Market share leaders often fail to become return leaders because they serve some customers who yield low returns and rely on size alone to create economies of scale. (1998)

• "The Real Reason Market Share Matters"
  Market share does count, but for more than the reasons thought previously. (1991)

• "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)