OffCoarse

This post is inspired by a project I did in college. There was a time during the “Mad Cow” scare when the United States could not export beef to other countries because we had a contaminated supply. The issue was not weather we would lose money during the time we could not ship beef (this is obviously huge), but rather what were the long term effects of the temporary loss. What happens to those customers who had to find a secondary supplier, would they come back?

The reason I am bringing this up is because lately it has come to my attention that many companies who had large market shares in their respective industries are going to be losing large amounts of clients during this period of time when money is tight across many companies. Many businesses will be switching to lower tier suppliers, and giving companies a chance who might not have had one other wise.

This will be due to many different factors mainly derived from budget cuts. The issue is not will business be lost but, what will happen when the economy comes back around? Will those customers come back around, or be happy with their new providers?

Lets take for example the scenario of a company which is currently using a software (saas) to do function T. Company XYZ, which sells the software to do function T, prides itself on being the top of the market, and many companies gladly pay for that prestige. Now with budget cuts many of those companies will have to look at cutting back and see that they can get by with a second tier which can do many of the same functions with half the cost. They find the core functionality they need in a new supplier and save the money to keep the doors open. They might not like it but it will be a good move to extend their cash during harder times. So company XYZ loses business but then a second tier company/supplier picks up new business.

Now lets say the company who just switched, to the low cost provider, now finds out that the second tier company will suite their needs just fine. They realize that even after the economy turns around that they can save money by keeping what works and what they have now with the second tier product works very well. The other side of the coin is that the new provider (second tier provider) has gotten so much business from customers leaving XYZ that they have been able to pump money back into R&D and have caught up with XYZ and are now keeping their customers who thought they would go back to XYZ once hard times were long gone. The graph below demonstrates what happens to XYZ company.

Before the hard times they were at D1 and their Price was high and the demand was steady. Then hard times hit and they lost business due to the economy and they moved down to D2. They had to compete more on price and the demand for prestige was less. Then good times come back around and they only move back to D3 because a good many of their customers decided to stay with the secondary supplier.

I hope you have followed me up to this point, because here is the bit of gold. During the hard times if your a second tier company you are going to be given a chance to eat away at your competitors lead by taking their customers on price, with out having to change at all. You then will have the ability to woo the customers who would never have considered you before, or the ones who were on the fence and went with the prestige of the larger company. It will be your turn to shine and grow, and learn how to keep these customers for the long haul. Of course some will go back when things turn around, but some will also stay.

This also goes to every indusrty from Marketing firms, Software Companies, Telephone providers, and even toilet paper brands. Just remember it is a good time to be taking away your competitors market share so go and get it.