How to avoid the Commodity Trap
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This document outlines strategies for electrical technology wholesalers to avoid falling into a commodity trap. It discusses segmenting the electrical technology market and implementing different supply chain approaches. The document recommends that wholesalers create strategic partnerships with installers, control the supply chain through exclusivity, and differentiate themselves through new earnings and business models like customer intimacy programs, product leadership, and offering total solutions. Lessons emphasize identifying an attractive market vision, a sustainable business model, best practices, and internal renewal power.
How to avoid the Commodity Trap
- 1. How to avoid the Commodity Trap Mr. Hubert Sturm Member of European Independents Consulting Group
- 2. Programme 1. Introduction 2. The Electrical Technology (ET) Supply Chain 3. Segmentation of the ET Market 4. The ET Wholesale Business Model 5. The ET Wholesale Chain Position 6. Avoiding the Commodity Trap 7. Practices: Earnings & Business Models 8. Lessons Learned
- 3. 1. Introduction • The position of Electrical Technology Wholesale in the Netherlands is under high price pressure • During the last decade Wholesalers improved the relation with their customers via added value and new services. • In recent years, as a consequence of transparency of Internet and tender practices by Installers, there’s severe price competition and only limited to no profitability of the extra services. • It looks like Wholesalers are approaching a Commodity Trap. • How can Wholesalers avoid the Commodity Trap? • Which strategies and practices are considerable?
- 4. 2. Electrical Technology Supply Chain Multi-channel from Producers to End Users Direct distribution to (large) Installers Installers Wholesale/ Distributor End Users Producers Integrators System Direct supply from producers to End Users Brand-Pull Producers/OEM What is the best fit for ET Wholesale?
- 5. 3. Segmentation of ET Market High-end versus low-end markets Customized Solutions High- OEM in the lead? (Large projects) end, full service Security End Users & Safety Installers Support for Mid-end, Energy Product Saving solutions Installers by Product- Commu Wholesale based nication Components Competitive Logistic low price Services Low-end products Different supply-concepts and approaches per segment
- 6. 4. The ET Wholesale Business Model A stronger position through Customer Intimacy for medium-sized and small Installers Jobber Producer/OEM Wholesale Installer Principal • Customizing • Passing specifications • Emphasis on • Assembly sub-modules • Back to core functions: functionality • Application knowledge - install • Performance • Concept development - operate requirement • Purchasing, - maintain • Development • Outsourcing Distribution, Inventory • Guarantees on • Production of control Management functionality • Consulting • Product specification • Restrict no. of suppliers • Private labeling Integration of ICT from Producer to Principal Deeplink ERP Webshop, Website, Producer Wholesale ordering system Installer info exchange Principal Deeplink
- 7. 5. The ET Wholesale Chain Position ‘Kraljic’-matrix shows the position of ET Wholesale from Installers perspective: mostly in Leverage and Routine segment. As a consequence of pressure on Installers business: there is a severe price competition.
- 8. 6. Avoiding the Commodity Trap • Rule no. 1: create a strong Chain Position: - Strategic partnerships with installers - Chain Control: sell or market the total solution - Exclusivity of distribution • Possible strategies: - Do not act - Lean: cost leader price leader - Expansion: geographic or product Differentiate and create ‘Pull’ New Earnings and Business (E&B)models
- 9. 7. Practices: Earnings & Business Models (1) • Customer Intimacy: - Support for ZZP, self employed firm: BtoC characteristics! - Vendor Managed Inventory - Engineering for the installer - Delivery complete package on spot in due time - Website support - Co-creation with installer - Social media, Platform - Support for new services (High/Mid End) • Product / Concept Leadership: - Sustainability, Corporate Social Responsibility - Inner-city distribution (cross docking / one-stop-shop) - Long-tail Supply - Fleet Management
- 10. 7. Practices: Earnings & Business Models (2) • Asset management in partnership with installers: guarantee the function: get paid for the function / availability • Rapid manufacturing, 3D - printing (production role) • New combinations of products/services: all kinds of remote control • Total Solution Supply & marketing in cooperation with Installers • Total Ownership Costs reduction programmes
- 11. 7. Practices of New Earnings & Business Models (2) • Subscription: availability of services and capacity • Consumption model: pay per hour • Bait model: vendor lock-in for replacements • Entry model or ‘freemium’ model: free samples • Tying: tying extra services at attractive basis service • Service model: low margin for product, vendor lock-in for service • Advertising model • Brokerage model: deal making for two or more parties • Market information model: sell internet profiles • Renting and leasing: in stead of ownership • Licensing
- 12. 8. Lessons Learned How to avoid the Commodity Trap in ET Wholesale: Identify : 1. Vision on the ET sector and attractive market segments 2. Sustainability of your Earnings & Business (E&B)model 3. Best practices for E & B models in the ET sector 4. Renewal power (competences) in your company Create your own E & B model that fits your strategy Sustainability of your Earnings & Business model Renewal Power Best Practices Your specific for ET Sector E&B models