buyer power

Still Money in the Masses

shopper-action press-CHANGED
Talk about bulk sales.
  • Why it matters

    Why it matters

    • It may be easier and more profitable to focus for companies to develop and sell product to other companies instead of consumer but it can also be riskier.
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  • Facts

    Facts

    • Siemens and General Electric  have spun off their household appliance divisions.
    • Samsung earns huge profits from its smartphones and tablets, with sales of more than €150 billion ($190.73 billion).
    • Bosch has been highly successful selling to both bulk-buying customers and individual consumers.
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  • Audio

    Audio

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The consumer is mysterious creature and one that is hard for companies to understand.

Once again, a major company has capitulated in face of capricious customers as the American computer giant, Hewlett-Packard, seeks to split its business into separate entities: its consumer-driven computer and printer operations and its fast-growing corporate hardware and technology services division. This puts the Silicon Valley technology firm in good company. Siemens and U.S. rival General Electric are slashing their ties to the average person on the street by spinning off their household appliance divisions, emulating IBM, which long ago decided to concentrate solely on corporate customers.

The arguements for withdrawing from the consumer market are always the same. Doing business with bulk buyers has more potential, is more focused on the future and much more profitable. That’s certainly the view of Meg Whiteman, chief executive officer at Hewlett-Packard.

What executives never mention is that most companies are too lethargic, too bureaucratic and, above all, too expensive to do good business with any Tom, Dick, and Harry on the street. They don’t want to accept this fact because there is indeed money to be made from those oh-so-temperamental consumers. You just need to know how.

Often, the argument is made that smaller units will be more directly responsive to competition and are not as affected by the constraints of a major corporation. That sounds plausible except that in most cases, the divisions being spun off already are so troubled they face a hard road even without a bureaucracy on their backs. For proof, look no further than two former Siemens divisions: Osram, which makes lights; and Gigaset, which produces phones.

Apple, on the other hand, is the best example of a company generating gigantic earnings from consumer sales. Its major rival, Samsung, also earns huge profits from its smartphones and tablets, with sales of more than €150 billion ($190.73 billion). What  Apple and Samsung have in common is a commitment to creativity, efficiency and customer service.

Focusing on large companies instead of consumers doesn’t necessarily guarantee a rosy future: The larger the order, the great the risk.

There’s no question there are advantages to concentrating on big customers. Companies no longer need to care about the moods of consumers. They can develop products over a longer period of time without following every new consumer trend. Procurement officers in companies and governments have clear, understandable criteria to select their suppliers, which offers manufacturers dependability. It’s also easier to reasonably predict exactly how many turbines will be installed worldwide each year, or how many x-ray machines German hospitals will order.

Focusing on large companies instead of consumers doesn’t necessarily guarantee a rosy future: The larger the order, the greater the risk. If a new model of smartphone flops, the manufacturer almost always can take it in stride because it’s selling other products. Within a half year, the next model of smartphone will be introduced.

But the loss a long-running service contract can have catastrophic economic consequences. Additionally, big corporate customers and government agencies often require bids on contracts, leaving little opportunity to differentiate on anything other than price.

There’s another advantage to retaining average consumers. Where IT divisions were once the driving force in technical development, today it’s often employees, whose private purchases of the coolest new fitness watch or the latest version of smartphones drive brand awareness.

A number of big manufacturers still target consumers. Stuttgart-based Bosch, for example, is currently integrating Siemen’s household appliance division, which the two companies had run jointly. Bosch is a well-established name for home improvement tools, in addition to being one of the world’s leading automotive suppliers.

Volkmar Denner, chairman of the board of management at Bosch, believes the company can be highly successful selling to both bulk-buying customers and individual consumers.

Perhaps one day Hewlett-Packard, IBM and Siemens will realize that saying goodbye to the private customer was a big mistake.

 

The author is correspondent in Munich. He can be reached at hofer@handelsblatt.com

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