Customer Decisions on Benefits
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.
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.