Wednesday 10 October 2012

When Major Customers Become Major ‘Share-holders’...

Yesterday’s news that a major pizza manufacturer fell into administration following the loss of a major contract, raises the issue of risk in dealing with large customers.

With the possible exception of those supplying M&S, major customers’ share of a supplier’s business tend to replicate retail market shares.

Fair shares in the marketplace
In other words, in the food sector, the major mults’ shares of a typical food suppliers business might be
- Tesco            30%
- Asda             17%
- Sainsbury’s    16%
- Morrisons      12%

With Health & Beauty, the shares would obviously be skewed in favour of Boots, sometimes taking  a 30+% share.

To access the full potential of a product, this suggests that a  supplier should aim at achieving these relative shares in the marketplace.

Dealing with a customer you like...
However, given the differences in relative compatibility*, a supplier can find that they ‘get along’ better with some customers, making it ‘easier’ to collaborate, resulting in that customer’s share becoming greater than its market share. This can sometimes lead to a point where it can represent more than 40% of the business, a position that is not desirable for supplier or retailer, given the consequences of termination for each party, including possible negative (and often undeserved) media coverage for the retailer..

Fair share and risk
Given the risk profile of the supplier (risk-seeking, risk-neutral or risk-averse) it is important to attempt to achieve and maintain ‘fair shares’ as per above.

In the event that a customer begins to ‘over perform’ it is obviously important to follow it all the way, at the same time diagnosing probable causes and attempting to replicate the process with other major customers. In which case the Ansoff Matrix on developing business, could provide a few pointers…

In the current climate, we may devote so much time avoiding the possibility of a customer going bust, we can run the risk of a customer being too successful, with equally catastrophic consequences…

* See qualities of a good trade partner

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