Analysis 2: Requirements for Customer Information

PURPOSE: This analysis helps the company organize the information it needs from the marketplace in order to conduct many of the Analyses that follow.

APPROACH: You would use this Analysis along with Analysis 66. In order to conduct many of the Analyses in the Diagnose section, the company should gather information on each Very Large and Large customer in the marketplace. If there is a significant number of Very Large and Large customers, then the company should interview a sample of these customers in order to make informed estimates about them and the way they operate. In addition to gathering information on each Very Large and Large customer in the marketplace, the company should also survey a sample of the Medium and Small customers in order to ensure that they are represented in the information set.

This segmentation should evaluate the purchasing power of each customer who makes the final buying decision. Customer buying decisions can be centralized, standardized or independent. In each case, the company counts the customer only at the point of his final purchase decision. For example, a customer who uses a centralized approach to his purchases has the headquarters as the buying location. A customer who uses a standardized approach has at least two people involved in the buying decision, the headquarters and the field office. However, the field office is the final customer buying location and the one who should count in this segmentation analysis. A customer buying location should be the basis for measuring the size of the individual customer. This often means the company must get additional information about customers, especially those who use standardized buying.

This analysis should cover only those customers buying directly from the company rather than through a channel of distribution. In many cases, the company sells directly to an Intermediary customer rather than to a Final customer. If you plan to segment the customers of your Intermediary customers, the Final customers, you should conduct separate analyses of those customers.

The information needed for each customer includes the following:

  • Current year total industry sales to each customer buying location;

  • Annual growth rate in those sales. This data is most helpful if the company is able to gather actual sales to the customer over a period of time. For example, the company may ask the customer for his purchases from all industry suppliers for three years ago and those today. This enables the company to calculate a growth rate for the customer rather than simply relying on an estimate;

  • Current supply arrangements for that customer buying location expressed as percentage of total purchases from each of the Primary, Secondary, Tertiary and Other suppliers;

  • How many years each supplier has been in the customer's relationship;

  • The reasons the customer uses each of his suppliers below the Primary supplier, that is, the reason for the use of the Secondary supplier, for the use of the Tertiary supplier and so forth;

  • The mix of the industry Price Points purchased by the customer, stated as a percentage of total unit or dollar purchases. It is most helpful if the company also gathers information on the product price point mix for each of the other suppliers to the customer as well;

  • The indexed price the customer pays to each supplier. Assuming that the Primary supplier charges the company a price of 100, the customer should describe the prices paid to the other suppliers in his relationship. If there is any difference from the 100 base price, the company should understand why the customer paid a supplier a different price than the 100;

  • Volatility in the customer relationship over a period of time. The volatility should be reported by year of occurrence. The company should gather the following information about each instance of volatility:

    • Was the volatility the result of a "win" or "fail" event? The company may have to make this determination for itself on the basis of its current definition of a "win" and a "fail" event. The company can firm its impression by asking the customer whether the incumbent was unable to do something the average competitor could do or whether the gaining competitor did something the average competitor in the market could not do.

    • In the event of a failure, what supplier lost volume (i.e., suffered Negative Volatility) and what were the reasons for the Get Out or Decrease Use event for the supplier losing the volume?

    • In the event of a failure, what supplier gained volume (i.e., had Positive Volatility) and what were the reasons for the Get In or Increase Use event for the supplier gaining the volume?

    • In the event of a win, what supplier gained volume and what were the reasons for the Get In or Increase Use events?

    • In the event of a win, what supplier lost volume and was the losing supplier’s volume loss a Get Out or Decrease Use event?

    • What were the new percentage supply arrangements after the volatility event?

    • If you are interested in a particular Company X performance, what are the reasons that Company X did not gain the volume, that is, what were the reasons Company X was eliminated at the invitation or evaluation level of the customer decision?

Return to Diagnose Segments: Introduction

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)