Analysis 66: Approach to Create the Customer Information Database

Here is a relatively short and easy way to get good quantitative information about your customers and how they buy.

First, obtain or create a list of all the customers in the business. If your business has Intermediary customers as the main customers, you may obtain this list from your industry association or from commercial concerns, such as Dun and Bradstreet. If consumers are your main customers, you can interview a sample of them in local public areas, such as shopping malls. No list is necessary when consumers are the customers.

Second, use your sales force and marketing staff to provide answers to the questions below for up to 100 specific customers. You should select each of these 100 customers at random from the list of all customers, whether or not you have a relationship with the customer.

Third, conduct interviews of 25 Very Large and Large customers to obtain their detailed answers to the questions below. If your largest probable target customers are Large and Medium customers, your 25 detailed interviews should focus on these customers. You will be able to determine the size break points for each of these customer size segments from your previous step, the analyses of 100 random customers. You should select these 25 customers at random as well. Each interview should last from 15 – 20 minutes. The answers to these questions will eliminate most or all of your uncertainty about how the customers responsible for 80% of the sales volume in your business make their buying decisions. Ideally, the customer should not know the company sponsoring the interview. We have found that you can accomplish this anonymity by using college or graduate students, on a temporary assignment, to conduct the interviews.

The important issues and the questions to ask about each are as follows:

  1. Determine whether the customer is a Centralized, Standardized or Independent purchaser. You will use this set of questions for Intermediary customers and for companies as Final customers. You will not need answers to this issue for consumers as Final customers. These questions help you plan and estimate the cost of your marketing and sales efforts for customers who use each approach to purchasing your product.

    1. How many different purchasing locations exist for the company?

    2. Who determines what suppliers will be allowed to bid for the business in each location?

    3. Who determines the amount that each location will purchase from each supplier?

    4. Who negotiates the price for the purchases of each location?

    5. Who determines the delivery schedule for the purchases for each location?

  2. Determine the size of the customer purchase location and the growth rate of the purchases at that location. From this point forward, all questions relate to the decisions of the individual buying location. If you have a fact base on this customer location, use it to confirm or correct customer estimates.

    1. How much do you purchase from all industry suppliers at this location today? The estimate may be a weekly, monthly or annual rate of purchases.

    2. How much did you purchase from all industry suppliers three years ago? The number of years in your database is up to you. Usually a three year period is enough to discern market trends and is relatively easy for the interviewee to recall.

  3. Determine volatility for the buying location. The answers to these questions enable you to estimate total annual positive and negative volatility for each size segment and for the total market. They enable you to calculate the Win/Fail proportions of the volatility and to understand the relative strengths and weaknesses of the market's top competitors.

    1. Who are your suppliers today?

    2. How much do you purchase, in percentage or money terms, from each supplier?

    3. With each supplier, how many years has the supplier been in the role (i.e., Primary, Secondary, Tertiary, Other) it holds with your company?

    4. How many years, consecutively, has each supplier been a supplier to your company?

    5. Who were your suppliers three years ago?

    6. How much did you purchase, in percentage or money terms, from each supplier three years ago?

    7. Explain each individual change from one supplier to another.

      • Why did you reduce the allocation to the supplier (i.e., Get-Out or Decrease Use)?

      • Who was the supplier receiving an increase in your allocation of purchases (i.e. Get-In or Increase Use)?

      • How did the supplier with an increasing allocation gain your business over other suppliers?

  4. Determine Supplier Roles, their sizes and reasons. The answers to these questions help you understand and exploit the various roles in customer relationships. They are the basis for your determination of tiers in your market. And they help you prepare for your product and service innovation program.

    1. Why do you purchase from the Primary supplier?

    2. Why do you give the Primary supplier the proportion of the purchases you give him?

    3. Why do you purchase from the Secondary supplier?

    4. Why do you give the Secondary supplier the proportion of the purchases you give him?

    5. Why do you purchase from the Tertiary supplier?

    6. Why do you give the Tertiary supplier the proportion of the purchases you give him?

    7. Why do you purchase from Other suppliers?

    8. Why do you give the Other supplier the proportion of the purchases you give him?

  5. Determine Price Point purchases and growth over time. The answers to these questions complement the answers in subjects C and D. They alert you to potential problems or opportunities in Price Points you do not cover and may help to explain some of the differences in margins or profits among industry competitors. You will reflect the results of these questions in your product and service innovation program.

    1. Specify for the customer the definition of Standard Leader, Performance Leader, Price Leader and Next Leader (if any) products by mentioning their different benefits or by naming particular products.

    2. What percentage of your total purchases today would we classify as:

      • Standard Leader products?

      • Performance Leader products?

      • Price Leader products?

      • Next Leader products?

    3. In some cases, product definitions and benefits change over time. If that is the case in your industry, redefine the product categories for the customer. Then ask: three years ago, what percentage of your purchases were:

      • Standard Leader products?

      • Performance Leader products?

      • Price Leader products?

      • Next Leader products?

    4. What percentage of your current purchases from your Primary, Secondary and Tertiary supplier, respectively, are:

      • Standard Leader products?

      • Performance Leader products?

      • Price Leader products?

      • Next Leader products?

  6. Determine relative pricing. Customers are commonly reluctant to give you actual prices. They will much more readily give you the percentage price differences among their various role suppliers. The answers to these questions help you understand Price Leverage role returns and the pricing strategies of some key market competitors. Assume that your Primary supplier charges you a price indexed at 100. From that index basis, please supply the price for:

    1. The Secondary supplier

    2. The Tertiary supplier

    3. The Other suppliers

  7. Understand the Customer Buying Hierarchy and approach to elimination of potential suppliers. Note: you may have answered part of this question in Question C7. Often customers, especially Very Large and Large customers, will conduct an elaborate bidding process for their business. These processes often involve many potential suppliers and several rounds of elimination of these potential suppliers. These questions give you a much richer understanding of the customers' buying criteria. They highlight customer needs and competitor weaknesses and strengths that would not be obvious from just the criteria for the final buying decision.

    1. When did you last put part or all of your business out for bid?

    2. Why did you put the business out to bid?

    3. How many bids did you receive?

    4. How did you eliminate bidders?

    5. Why did you accept the bid you accepted?

  8. Determine how the customer assures himself that his price is competitive with those of his own competition. Some customers bring a second Peer supplier into their relationships in order to get price information. Others call their competitors or friends in other parts of the country. An understanding of the customers' aproach to this issue helps as the Company develops its Pricing Policy.

  9. Determine why a customer does not buy from a given Supplier (e.g., our company). This should be the last question in the interview of the 25 Very Large and Large customers because it might reveal the interested industry competitor. You might find it helpful and more productive to ask about 3 or 4 competitors in this question. The answers to these questions tell us about our company's and our competitor's hidden volatility, strengths and weaknesses.

    1. When the customer has not been volatile, why does it not purchase from Supplier X?

    2. When the customer was volatile, why did the customer not entertain a bid or purchase from Supplier X?

Recommended Reading

For a greater overall perspective on this subject, we recommend the following related items:


Symptoms and Implications: Symptoms developing in the market that would suggest the need for this analysis.

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

  • "When Product Mix Matters" There are several price point specialists. Some are better positioned than others for long term success in a hostile market place. (1991)

  • "Building On Customer Volatility" In one crucial respect, hostile markets are actually more stable then non-hostile markets. During market hostility, share shift slows.(1995)

  • "Failure Shifts More Share Than Success" For a company trying to gain share in a mature market, nothing succeeds like failure – the failure of a competitor. (1991)

  • "Finding the Open Door" Volatility is the movement of volume from one supplier to another. A company can not gain volume unless customers are willing to make a change in suppliers. Volatility has special rules in hostile markets. (1995)

  • "How Customers Buy" Customers are often faced with a large number of possible suppliers. How does the customer screen these suppliers to find the one best choice for his need? (1992)

  • "The Choice of New Products" Companies add new products whether or not a market is hostile. But the choice of which products are most advantageous to add varies with the market situation. (1995)

  • "The New Pricing Structure" The structures of industry prices are fundamentally different in hostile and non-hostile markets. (1994)

  • "The Tallest Dwarf" A suppliers' goal is to take advantage of any market volatility, to take share wherever possible. Doing that requires understanding of what customers need. What are buyers buying? (1995)

  • "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)

  • "Who Has Pricing Power?" One of the first clear signs that a market has become hostile (or that hostility has ended) is a change in who sets prices. Pricing power shifts as a market moves into and through hostility. (1994)