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.

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?

  • "Use Subtle Strategy in Tough Markets"
    A hostile market operates differently than a market with "normal" competitive conditions. But as difficult as a tough market can be, it can also present an astute management team with an unusual opportunity.

  • "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.