Manufacturers need vertical-market strategies

As I previously reported (see "Cabling market growth slowing dramatically," July 2000, page 43), the results of a recent cabling-system market study indicate that the cabling industry has entered a saturation phase

Nov 1st, 2000
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Frank Murawski, FTM Consulting

As I previously reported (see "Cabling market growth slowing dramatically," July 2000, page 43), the results of a recent cabling-system market study indicate that the cabling industry has entered a saturation phase, in which doing business as usual is no longer a viable cabling- system supplier's business strategy.

Cabling suppliers can no longer rely solely on nationwide distributors for reselling into the general market. Because all large Fortune 1000 companies have installed local area networks (LANs), it is no longer possible for manufacturers to sell large volumes through the large distributors. Even before market saturation, distributors offered many brands of essentially the same products (meaning all products conform to the same standards), making it a competitive situation for all manufacturers. And with the huge demand for cabling systems, all manufacturers thrived.

But the situation has changed. The market-saturation effect has limited demand, and manufacturers without directed strategies will be vying for the same customers, with very similar products, using the same sales channels, at nearly the same prices. The question arises for manufacturers, "How can I differentiate myself from the pack?"

Vertical-market strategies

Years ago, manufacturers in the computer market faced a situation in which the mainframe and minicomputer markets saturated. As a strategic planner for a minicomputer maker at that time, I analyzed different approaches that manufacturers could use to differentiate themselves and came up with a "vertical-market strategy." We analyzed groups of customers by industry sector, examining their potential to purchase minicomputers.

This approach was combined with an analysis of each industry sector's penetration to determine how many more customers were left in each sector. Combining our company's strengths and weaknesses along with an analysis of our company's customer base revealed that we could focus on several industries and, in doing so, compete effectively against all other minicomputer makers.

I have conducted similar research specific to the cabling industry, and I believe a similar strategy can be applied to the current cabling-system marketplace.

In conducting analysis of the cabling industry, I started by determining the potential PC market and used the Bureau of Labor Statistics database on the Web, which specifies all the different occupational employees by industry sectors. Separating the white-collar workers in each sector formed the potential base of PC users within that industry sector. Also, I separately analyzed other PC users within each industry sector.

The number of white-collar workers, in conjunction with these other PC users, was the basis for the model's potential data-communications market by industry sector.

The second part of my analysis included a calculation of cabling penetration by industry sector. Using the database of Computer Intelligence Inc. (Southern California), which collects data on computer sites, I derived a list of LANs by industry sector. I combined the two parts of my analysis-the potential market and the penetration-to derive a figure of merit for several industry sectors, including manufacturing,transportation/communications/utilities, wholesale, retail, services, healthcare, education, and government. Calculating the percentage distribution of these figures of merit for the industry sectors provides an excellent proxy for the cabling-market opportunities within each of the sectors.

From this modeling analysis, I determined that a single industry sector accounts for almost 30% of the total cabling market in the future, based on its large white-collar worker population combined with its limited penetration to date. I also pinpointed two other sectors as primary targets because, even though their 5.2% growth rates are not the highest, the two sectors share cabling-specific attributes that lead to high growth.

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To gain a competitive advantage, cabling-system manufacturers would be well-served to consider vertical-marketing strategies. Each industry sector must be studied in detail, with special emphasis placed on the sales channels needed to target these sectors.

Frank Murawski is president of premises-cabling consulting firm FTM Consulting (Hummelstown, PA). He has compiled the results of his recent research into the study "Cabling System Vertical Markets," which is available through World Information Technologies (Northport, NY-(631) 754-5700). Murawski can be reached at tel: (717) 533-4990.

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