Part 2: Sources of New Market Share
Win vs. Failure
Capsule: Volatility happens either because someone wins the customer’s business outright or because a supplier to the customer fails that customer. When the incumbent supplier fails the customer, the customer looks to other suppliers to replace some or all of that failing competitor’s sales volume. The question of whether a market is a “win” or a “failure” market has an important effect on marketing, sales and product development. The more competitive the market, the more likely it is that failure causes volatility.
- Video #66: Overview of Segments Part 1: How to Look
- Video #67: Overview of Segments Part 2: What to Expect
- Video #68: Overview of Segments Part 3: What to Do
- Video #17: Value and the Customer Buying Hierarchy
You have analyzed industry volatility and identified the customer segments where the positive volatility is high. But what caused this volatility? Was it someone’s “win” or was it really someone’s “failure?” Why should you care, you ask? The answer is important because it informs both sales plans and product innovation initiatives.
The Company uses the positive volatility opportunities in the marketplace to gain new sales volume. This positive volatility is the direct result of either a “win” by a competitor or a “failure” by the incumbent supplier who sold to the customer before volatility. With a “win,” the competitor offers a customer something that other competitors either cannot, or will not, offer him. This makes the competitor unique for that customer. The second source of positive volatility is new sales volume that is the result of a “failure.” The Company gains volume because one of the customer’s current suppliers “fails” the customer in some way. A “failure” occurs when a supplier either cannot, or will not, offer his customer something that half of the suppliers in the marketplace are willing to offer the customer. (See Symptom: “Customers are making significant changes in their supplier arrangements“.) This “failure” upsets the customer. As a result,the customer opens his relationship to competition from other potential suppliers. Once the relationship is open to competition, the “failing” incumbent supplier suffers a negative volatility event. (See Perspective: “Turmoil Below: Confronting Low-End Competition“.)
- Audio Tip #34: How Does a Company “Win” in a Market?
- Audio Tip #35: How Does a Company “Fail” in a Market?
The competitor who gains the volume experiences a positive volatility event. That competitor may have offered benefits that other competitors did not offer. But the benefits that produced this positive volatility after an incumbent “failure” are less powerful and compelling than are “win” benefits. A competitor who “wins” beats other competitors outright by offering something unique. A competitor who gains after an incumbent supplier’s “failure” has a weak win. The share gainer’s value proposition was not compelling enough to open the customer relationship without the incumbent supplier’s prior “failure”. This benefit offering was powerful enough to beat other potential suppliers for the “failed” customer volume, however.
The Company uses the “win” versus “failure” analyses to inform the efforts it makes in targeting customer segment as well as in improving its value proposition. (See Symptom: “Most share shifting in the industry seems to be coming from volume gained within existing customer relationships rather than from new customers.”)
If the Company operates in a Fail Market, where positive volatility is primarily the result of a prior “failure” by an incumbent supplier, the Company would increase its emphasis on protecting its own market share by avoiding common “failures.” (See Symptom: “Competitors are upgrading their channels of distribution.”) The dominance of “failure” as the real cause of positive volatility suggests that new products and product features are losing their ability to shift market share. (See Perspective: “Success Under Fire: Policies to Prosper in Hostile Times.”) The Company might also change its pattern of investment in marketing and sales to customers, depending on the likelihood of their incumbent supplier’s “failure.” Since “failure” creates so many of the opportunities for positive volatility, the company would raise the level of its marketing and sales efforts devoted to customers of weak competitors, who are most likely to “fail” their customers.
- Audio Tip #33: Strong vs. Weak Competitors
- Audio Tip #36: The Importance of Customer Retention in Hostility
The Company would follow the contrary approach in a “Win Market.” If the Company operates in a market dominated by “wins” in positive volatility, it may choose to increase its emphasis on creating new products and developing the types of benefits that create “wins.” The Company’s marketing and sales efforts would focus on the Very Large and Large customers who tend to have higher-than-industry volatility in a “win market.”
Test Your Knowledge: Win v. Fail >>
Win vs. Failure Questions
The result of this analysis may surprise you. “Wins” dominate positive volatility in very fast growing markets, those growing in excess of 15 percent a year. However, even in markets with average volatility and growth rates below 15 percent a year, “failures” account for a substantial portion of total positive volatility. (See Perspective: “Failure Shifts More Share Than Success.”)
What actions define a supplier’s “win” and “failure”? (Analysis 20)
What percentages of positive volatility are the results of a “win” and of a gain after an incumbent competitor’s “failure”? (Analysis 21)
How should this “win” and “fail” analysis impact the Company’s plans for improvements in its value proposition?