Large customers are getting higher discounts

Symptom: Large customers are enjoying increasingly attractive discounts relative to smaller customers.

Implications for the market:

  • Large customers will continue to consolidate, gaining even greater share in the market as they pass their cost advantages on to their customers. As a result, they will be positioned to continue to demand price discounts.

  • Substantial discounts can make large customers appear less attractive to a supplier. When analyzed with traditional accounting methods, large customers often appear to constitute the least profitable customer group in hostile environments. Nevertheless, these customers are essential to the success of the best suppliers in the industry:

    • Large customers provide the economic structure that enables a supplier to serve other customers. They are often lower cost to serve than other customer groups, while at the same time they provide volume, which "base loads" the business and results in overall economies of scale.

    • And, they provide share growth. Because they can pass on their price advantages to their own customers, they often grow faster than smaller and medium-sized customers.

  • However, depending exclusively on large customers is as perilous as ignoring them altogether. Companies that devote themselves solely to large customers have difficulty achieving even average returns.

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

  • "Hostility in a Differentiated Market"
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  • "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.