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