Customers are taking on more suppliers because shortages have appeared

Symptom: Now that supply shortages have appeared, customers are seeking to diversify their sources of supply by taking on new suppliers.

Implications for the market:

  • When current suppliers cannot meet all of a customer's supply needs, that customer will add more suppliers.

  • Once new suppliers have entered a customer relationship, they can become entrenched for a long time to come and can take advantage of the situation to increase penetration at the expense of incumbent suppliers.

  • The best suppliers try to prevent competitors from entering into their best customer relationships by managing their customer shortages as carefully as if the industry were still in hostility. In other words, wise suppliers avert future problems by trying to keep their best customers sufficiently satisfied so that they do not open the door to new, competing suppliers.

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


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

  • "Hostility in a Differentiated Market"
    A bottle of wine is surely a differentiated product. Nevertheless, the table wine industry underwent the same economic traumas faced by more traditional industries.

  • "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?

  • "The Big Slice of the Pie"
    The head of one industry leader explains his company's insistence on being a key supplier to each of his customers: "The guy with the big slice of the pie doesn't go hungry." The workings of the typical hostile market provide solid support for this philosophy.

  • "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.