Industry customers are forming buying groups
Symptom: Some of the industry's customers have are forming cooperative buying groups, or the established buying groups are growing.
Implications for the market:
Generally, the industry's smaller customers are those most likely to join the buying groups. Assuming that happens in the industry, the result will be a change in industry profit dynamics.
In a traditional situation where smaller customers buy as independents, they pay higher prices that more than offset the higher cost to serve them. When smaller firms become part of a buying group (and the market is hostile), they may pay prices as low, or even lower than, the larger industry customers — yet their cost to serve may not fall.
The decision on how a supplier should deal with a buying group often depends on the degree of control that the group has on its members.
Some groups have members who will buy without much concern about the group choice of supplier. These groups can often be ignored.
Other groups have very loyal members who buy what the group recommends. In these cases, a supplier who wants the group's volume must sell and service both the group and its individual members.
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Perspectives: Conclusions we have reached as a result of our long-term study and observations.