Mr. Hubert Sturm
Member of European Independents Consulting Group
How to avoid the Commodity Trap
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
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?
2. Electrical Technology Supply Chain Multi-channel from Producers to End Users
Brand-Pull Producers/OEMWhat is the best fit for ET Wholesale?
En
d U
sers
Direct supply from producers to End Users
Inst
alle
rs
Pro
du
cers
Direct distribution to (large) Installers
S
yste
m
Inte
gra
tors
Wh
ole
sale
/D
istr
ibu
tor
3. Segmentation of ET MarketHigh-end versus low-end markets
Different supply-concepts and approaches per segment
En
d U
sersMid-end,
Product- based
Customized Solutions
(Large projects)
Product solutions
ComponentsCompetitive
low price products
Support for Installers by Wholesale
High-end, full service
Low-end
Security & Safety
Energy Saving
Communication
Logistic Services
Inst
alle
rs
OEM in the lead?
4. The ET Wholesale Business Model A stronger position through Customer Intimacy
for medium-sized and small Installers
Installer
Pro
du
cer/
OE
M
Jobber
Principal
• Development• Production• Consulting
• Passing specifications• Back to core functions:
- install- operate- maintain
• Guarantees on functionality
• Restrict no. of suppliers
• Emphasis on functionality
• Performance requirement
• Outsourcing of control
ERP Webshop,ordering systemProducer Wholesale Installer PrincipalWebsite,
info exchange
Deeplink
DeeplinkIntegration of ICT from Producer to Principal
• Customizing• Assembly sub-modules• Application knowledge• Concept development• Purchasing,
Distribution, Inventory Management
• Product specification• Private labeling
Wholesale
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.
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
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
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
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
8. Lessons Learned
How to avoid the Commodity Trap in ET Wholesale:Identify :1. Vision on the ET sector and attractive market segments2. Sustainability of your Earnings & Business (E&B)model3. Best practices for E & B models in the ET sector4. Renewal power (competences) in your companyCreate your own E & B model that fits your strategy
Renewal Power
Best Practices for ET Sector
Your specific E&B models
Sustainability of your Earnings & Business model
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