Marketing Strategy and Competitive Positioning pdf ebook

Underestimating the rate of change
Even if a customer is willing and eager to offer a seller the status of a strategic supplier 
and is treated as a strategic account, with all the additional investment that this is likely to 
require, some sellers mistakenly believe that strategic relationships with these accounts will 
be stable and long term.
The more likely truth is that as a seller’s own strategy changes, the importance of a 
particular supplier will change – possibly dramatically and quickly. As the recorded music 
business transformed to one based on Internet downloads instead of physical products, 
strategic suppliers became those with expertise in the new technology, not those offering 
CDs and support for the old technology. Indeed, supplier switching may increasingly be an 
explicit element of a company’s business strategy. In 2005, Apple announced it was teaming 
up with Intel to provide the components suitable for new generations of Apple products, 
effectively bringing an unexpected end to long-term supplier relationships with IBM and 
Freescale (formerly Motorola) (Morrison and Waters, 2005; Witzel, 2005a). Apple’s goal 
was to build on the momentum created by its iPod digital music player and to meet the 
lower prices demanded in the mass consumer market. Supplier switching may be an inevi-
table consequence of strategic change.
The reality is that the strategic supplier relationship for many suppliers will be tem-
porary and transitory, as customers develop their own market strategies and adopt 
new technologies. This leaves the supplier investing heavily in the strategic account 
relationship, only to see that relationship disappear as the customer moves on. Custom-
ers rarely offer recompense to a supplier to cover the costs of dismantling a redundant 
SAM system.
Even more traumatic is the sudden collapse of a key account/strategic supplier rela-
tionship. Changes in customer businesses may end relationships that had taken years to 
build: the key account is taken over and the acquiring company imposes its own supplier 
arrangements on the acquired business; there is a change in supply strategy from the top of 
the customer organisation – for example, the move from single sourcing to multiple sourc-
ing; the customer learns technology and process from its strategic supplier, enabling it to 

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undertake production of the product in-house; or customer personnel move on and their 
replacements do not have a close relationship with the supplier and maybe do not want one. 
The collapse of a strategic account relationship will have a major negative impact on sales 
volume, which may not have been predicted. The end of a SAM relationship may impose 
additional and substantial costs – adjusting operations capacity to allow for short-term 
volume reduction, disentangling integrated systems, rebuilding processes previously shared 
with the key account, reallocating or removing personnel previously dedicated to the key 
account, or putting in place new arrangements to retain whatever residual business there 
may be in the account.
The failure of a strategic account relationship may be very public and create additional 
vulnerability. If a company’s shares are written down because of the collapse of business 
with a strategic account, then the supplier becomes vulnerable to a predator – perhaps even 
the customer in question, who has the opportunity to in-source the product by buying the 
supplier, or possibly a competitor, or possibly a stalker from outside the sector. The point 
is that the cost of a failed key account relationship may not simply be losing the customer, 
it may be losing the company as well.
Consider the experiences of Marconi in its strategic relationship with British Telecom. 
Marconi was the rump of the former GEC and through the 1990s focused heavily on invest-
ment with dominant customers in the telecommunications sector. Marconi was one of 
British Telecom’s largest suppliers of network equipment for several decades. By 2004, BT 
represented a quarter of Marconi’s total sales – as much as the next nine customers put 
together. Notwithstanding being described as a ‘terrific partner’ by the chief executive of BT 
Wholesale, in 2005 Marconi was shut out of BT’s £10-billion ‘21st Century Network’ pro-
ject. BT’s decision was based on price, not technology or relationships, and Marconi could 
not equal the prices of overseas competitors from eight countries, ranging from France to 
China. Under BT pressure, Marconi had even lowered prices to a level that would have 
represented substantial losses in its UK operation, but not enough to satisfy BT. With the 
loss of a quarter of its sales base, shares falling 60 per cent in value and substantial job losses 
in prospect, Marconi’s experience underlines the risks of over-reliance on one customer, and 
the critical error of believing that a customer would be a loyal partner. The loss of the BT 
business fundamentally weakened Marconi’s ability to compete globally in new areas such 
as Internet Protocol networks. Within months of the BT decision, it was clear that inves-
tors were looking for Marconi to sell the business or merge to survive. Marconi’s Chinese 
joint venture partner, Huawei, gained two parts of the BT contract, and BT even hoped it 
would get access to Marconi’s technology through this lower-price channel. In 2006, the 
main Marconi business was sold to Ericsson, leaving Marconi only a smaller services busi-
ness working on maintenance of legacy systems (Ashton, 2005; Brummer, 2005; Durman 
and Box, 2005; Grande, 2005).