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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: John Stichnoth who wrote (17928)	2/14/2000 8:51:00 AM
From: FLSTF97	Read Replies (1) \| Respond to of 54805

CREE Switching Cost It doesn't matter to anyone what kind of light goes into the space provided,as long as it fits and it draws only the specified amount of juice from the battery. John, I agree with your statement in theory. While I don't think the barriers for replacing a light is huge, I think you do have to recognize what I'll call soft barriers. Heres how that scenario plays out in real life (any of you folks involved in technical sales jump in here) The purchasing manager is under pressure to always lower costs. So he finds the firm Joe's Me Makum Too LEDS, LTD that is willing to shave X% off the incumbent's price. He fires the info off to the responsible qualifying organization where it dribbles down the totem pole until it lands on the desk of an engineer. Here's this engineer's environment: He over tasked and behind on three critical projects (probably for the new model who's launch is fast approaching) which he reviews daily with his bosses. Now he knows this purchasing agent gets kudos if the engineer can find the time to qualify the new vendor, but he gets to go find a new job if he doesn't get the delayed programs back on track. So what happens? That request either is buried or he responds defensively with a laundry list of info to be provided by the new vendor. Sooner or later the vendor assembles the info, which is of course found lacking in some way. So a request goes back for augmentation of the data. This often manifests itself as testing that is far more stringent the incumbent had to surpass. To a certain extent this is justified because a quality history exists for the current supplier base. The engineer knows that if he signs off on the new supplier and something happens that forces say a recall: well its time to find a new career/industry in which to work. (If you are really interested I can give a personal message example of how roughly a $.02 cent savings in a very special adhesive prevented shipping $20 million in systems during 2 months and shut down over $100 million installed base of those machines...Glad I didn't signoff on that change, it only erased by bonus for 2 quarters.) The greater the potential cost savings the more pressure there will be to qualify something new. Nevertheless the trend in many businesses is to reduce your supplier base because it can save costs. That usually means that a preferred supplier can be somewhat worse than a newbie and still defend his turf. Still the switching cost in this case is unlikely to huge(say $100,000's +)...unless something goes wrong forcing a product launch delay, or recall. FATBOY