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- Market Share - TCO - Profitability Causation Loop
- Management Strategy Based on Niche LTCO Analyses
Market Share - TCO - Profitability Causation Loop
The extent to which market share correlates or causes profitability is debatable. To answer this question for the Flow and Treat industry, it is desirable to separately analyze the general performance and high performance segments.
The general performance segment depends on price and delivery. There are economies of scale. The large producer achieves lower production costs and potentially higher margins.
The high performance Flow and Treat purchases are $300 billion per year. For this segment there are a number of related factors forming a causation loop consisting of
· Market share
· Total cost of ownership (TCO)
· Industrial Internet of Wisdom (IIoW)
· Lowest Total Cost of Ownership Validation (LTCOV)
· Profit margin and total profits
TCO is dependent on the performance of the product. Higher prices and margins can be achieved if the customer can be persuaded that the product is the best choice (LTCOV).
If a company has a high market share it can infer LTCO. It does not need proof but only to point to the many happy users. So market share is an important factor in LTCOV. Competitors have to prove that their product is better. This is not an easy task.
It is necessary to gather all the available information and provide evidence or opinions of experts. Due to digitalization and the willingness of media to provide permanent access to published articles there is now an IIoW.
This path provides the opportunity for LTCOV of better products. It is enhanced to the extent that the TCO can be more accurately assessed with on line monitoring (IIoT).
A new valve or pump may only be installed at a few sites. However if there is continuous monitoring of TCO there is considerable validation. Therefore IIoW including IIoT becomes a route for suppliers with low market share to overcome a disadvantage.
IIoW allows companies to provide LTCOV in each niche area. The purchaser at a vaccine manufacturer is going to be swayed by case histories and analysis of the product use at other vaccine plants.
This LTCOV in each niche eliminates the market share advantage of the large company with a major share of the broader market e.g. hygienic. The multi product company can show that lots of food and pharmaceutical plants use his product. But if the smaller supplier shows LTCO in the niche, he has the advantage with the customer in that niche.
Knowledge of the industry and all the niches becomes important. The large companies with many products serving a specific niche have the advantage of more cost effectively gathering the knowledge. If they do not leverage IIoW this is no longer an advantage.
There is a new environment where market share is more quickly impacted by new and better products. There is a causation loop where leveraging each of the factors can lead to higher profits.
McIlvaine Company tracks market share and profitability of many thousands of flow and treat companies. This is reflected in multi-client market reports and private consulting. There are global market shares in the reports.
For individual clients, the level of detail can be as specific as trunnion not floating ball valves for mid-stream gas applications for 18-24 inch sizes in Algeria.
Information on the multi-client reports is shown at www.mcilvainecompany.com under markets at the top of the page.
Relative to private consulting you can contact Bob McIlvaine at 847 226 2391 or rmcilvaine@mcilvainecompany.com.
Management Strategy Based on Niche LTCO Analyses
Digital communications and content marketing are providing cost of ownership factors which will allow purchasers to make better choices.
Nearly $300 billion/yr of flow and treat purchases are based more on anticipated product performance than on price and delivery. This decision on Lowest Total Cost of Ownership (LTCO) is based on the following factors and examples.
· Financial: interest rate, evaluation life
· Common: energy, maintenance, product value
· Shared product features: some competitors also have these features
· Unique product features: only offered by one supplier
Too many products are purchased because they are what is being used rather than what might be better. In order to gain market share suppliers need a Lowest Total Cost of Ownership Validation (LTCOV) which includes substantiation of all factors.
Shared product features need to be incorporated. Dry scrubbers reduce water usage compared to wet scrubbers. Diaphragm valves have hygienic advantages over other types.
It is possible to have the best performance even though there are no unique features. If the product incorporates more of the shared cost reducing features than any competitor, it can claim LTCO.
Product based associations are well equipped to communicate shared product features. Other associations such as those built around the environment or safety can contribute common factor evidence. The media can help communicate this knowledge.
The Mcilvaine company is working with suppliers to help them quantify the unique product benefits in each niche. With many industries, many processes, and many geographies it is critical in each niche to
· Determine the present and future size of each niche
· Determine present competitor market shares
· Determine future competitor market shares based on LTCO
· Rank opportunities relative to profits which can generated
Use of niche LTCO Analyses to Determine Strategy
The program is explained at http://home.mcilvainecompany.com/index.php/30-general/1658-holistic-content-marketing-program
A number of multi-client flow and treat market reports are available and described at www.mcilvainecompany.com Click on markets at the top.
Bob McIlvaine can answer your questions at rmcilvaine@mcilvainecompany.com
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