BUS 596 Independent Study Chapter 6&7

Chapter 6 & 7 Strategy Towards Buyers & Suppliers, Industrial Structural Analysis

Selection of buyer can after the firm’s growth rate and reduce disruptive power of buyers. For example, selling ICs to highly price competitive consumer electronic product lines is different from sale to the high quality orientated automotive makers. The buyers with the greatest potential can also be the most powerful in exercising their power as everything down to the end is cost driven. Four board criteria determine selection of buyer and strategy should apply: Purchasing need v.s. the firm’s capability, growth potential, structure position and cost of servicing. As the buyer tries to switch the supplier, it may face the high fixed cost of switching since redo the qualification & audit of new supplier will be required. If the selling product does not have the advantage of cost leadership, another way to raise the barrier for the buyer to switch is by persuading the customer to design the firm’s product with the custom varieties and assistance training. Since the one with the final authority to decide the purchase may not from the purchasing department but the one use the equipment most; therefore, the following value-added tactics become critical to win buyers – responsive customer service, engineering assistance, rapid delivery, honor credit and user friendly features of the products. Other factors can attract buyers to make final decision making include resale value, revenue generating capacity, maintenance and installation cost.

Without well manage the supplier quality, the firm may pay for the penalty if the gross product not match the spec or the high percentage of field failures occur at the end customer site.

Industrial structural analysis is to understand how firms’ differing competencies in marketing, cost cutting, management, organization to develop the strategy make company profitable and survive in the long term. The general strategy options include – specialization, brand identification, push/pull, channel selection, quality of product, technology innovation, vertical integration, cost position, service, financial leverage, and relationship management. The 1^st step of structural analysis is to characterize the strategies of major competitors along with different strategy options. For high tech companies the innovation and specialization plus vertical integration will have more dominate effect than brand identification, cost, service and financial leverage. The author also highlights that the highest payoff is in creating a new strategic group. A technological evolution/revolution change will block all the possible competitor to grab the market share. The comparison between Apple and Nokia complete at cellar phone market is a typical example.