Supplier convergence

Last updated October 04, 2019

Supplier convergence is a business model in which a company offers a combination of services or products that were previously supplied by separate companies. It is not to be confused with product convergence, where one product combines and replaces several others; rather, supplier convergence happens primarily through mergers and acquisitions, or through the expansion of larger companies into areas previously dominated by specialty businesses.

A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction and modification is also called business model innovation and forms a part of business strategy.

A company, abbreviated as co., is a legal entity made up of an association of people, be they natural, legal, or a mixture of both, for carrying on a commercial or industrial enterprise. Company members share a common purpose, and unite to focus their various talents and organize their collectively available skills or resources to achieve specific, declared goals. Companies take various forms, such as:

In economics, a service is a transaction in which no physical goods are transferred from the seller to the buyer. The benefits of such a service are held to be demonstrated by the buyer's willingness to make the exchange. Public services are those that society as a whole pays for. Using resources, skill, ingenuity, and experience, service providers benefit service consumers. Service is intangible in nature.

Convergence in the Retail Industry

Supplier convergence in the retail industry is often described as the creation and growth of, literally, "one-stop shopping" (Slywotzky et al. 1999), epitomized by retail giants such as Wal-Mart, whose outlets offer a wide range of products in an attempt to make competing specialty stores obsolete. Essentially, each section in large department stores, such as hardware, electronics, and clothing, consequently aims to replace competing businesses specializing in just one of those areas.

While the above example deals with the combining of many different categories of products, supplier convergence can also occur with just one primary product. Examples of this trend would be the growth of book superstores such as Borders and Chapters, who have replaced many independent bookstores not by offering different products, but by offering a greater number of books that only several smaller stores combined could match.

Borders Group international book and music retailer (1971-2011)

Borders Group, Inc. was an international book and music retailer based in Ann Arbor, Michigan. In its final year, the company employed about 19,500 people throughout the U.S., primarily in its Borders and Waldenbooks stores.

Chapters Inc. is a Canadian big box bookstore banner owned by Indigo Books and Music. Formerly a separate company competing with Indigo, the combined company has continued to operate both banners since their merger in 2001. As of July 2017, it operated 89 superstores under the banners Chapters and Indigo, and 122 small format stores under the banners Coles, Indigospirit, SmithBooks and The Book Company.

An independent bookstore is a retail bookstore which is independently owned. Usually, independent stores consist of only a single actual store. They may be structured as sole proprietorships, closely held corporations or partnerships, cooperatives, or nonprofits. Independent stores can be contrasted with chain bookstores, which have many locations and are owned by large corporations which often have other divisions besides bookselling.

Convergence in the Technology Industry

The boom of technology and the internet in recent years has been a key factor behind the trend of supplier convergence. The bundling of products together is a prime example of how a telecom/entertainment company could exploit the convergence pattern to their advantage. By offering triple play discounts to customers who subscribe to a number of services such as land-line telephone, wireless phone, internet, and digital cable, companies are encouraging customers to receive all these services from a single company rather than several different ones. The expansion of wireless networks is also a factor in supplier convergence, as one national or international wireless phone company could replace many localized ones (InterTradeIsland 2002).

In telecommunications, triple play service is a marketing term for the provisioning, over a single broadband connection, of two bandwidth-intensive services, broadband Internet access and television, and the latency-sensitive telephone. Triple play focuses on a supplier convergence rather than solving technical issues or a common standard. However, standards like G.hn might deliver all these services on a common technology.

Digital cable is the distribution of cable television using digital video compression for distribution. The technology was originally developed by General Instrument before being acquired by Motorola and subsequently acquired by ARRIS Group. Cable companies converted to digital systems during the 2000s, around the time that television signals were converted to the digital HDTV standard, which was not compatible with earlier analog cable systems. In addition to providing higher resolution HD video, digital cable systems provide expanded services such as pay-per-view programming, cable internet access and cable telephone services. Most digital cable signals are encrypted, which reduced the high incidence of cable theft which occurred in analog systems.

Websites provide another example of supplier convergence, often with regards to services rather than products. Mega-search sites such as Google and Yahoo have expanded from their humble beginnings as search engines to comprehensive information portals offering news, weather forecasts, and financial services. In doing so, they have created websites that replace or combine the services of many other specialized sites.

Google LLC is an American multinational technology company that specializes in Internet-related services and products, which include online advertising technologies, search engine, cloud computing, software, and hardware. It is considered one of the Big Four technology companies, alongside Amazon, Apple, and Facebook.

A web portal is a specially designed website that brings information from diverse sources, like emails, online forums and search engines, together in a uniform way. Usually, each information source gets its dedicated area on the page for displaying information ; often, the user can configure which ones to display. Variants of portals include mashups and intranet "dashboards" for executives and managers. The extent to which content is displayed in a "uniform way" may depend on the intended user and the intended purpose, as well as the diversity of the content. Very often design emphasis is on a certain "metaphor" for configuring and customizing the presentation of the content and the chosen implementation framework or code libraries. In addition, the role of the user in an organization may determine which content can be added to the portal or deleted from the portal configuration.

Convergence Pattern

A 2004 paper published by Microsoft explains what it calls the "convergence pattern" (Trowbridge et al. 2004); that is, the process that businesses must go through in order to achieve supplier convergence. The convergence pattern consists of three main steps:

Microsoft U.S.-headquartered technology company

Microsoft Corporation is an American multinational technology company with headquarters in Redmond, Washington. It develops, manufactures, licenses, supports, and sells computer software, consumer electronics, personal computers, and related services. Its best known software products are the Microsoft Windows line of operating systems, the Microsoft Office suite, and the Internet Explorer and Edge Web browsers. Its flagship hardware products are the Xbox video game consoles and the Microsoft Surface lineup of touchscreen personal computers. As of 2016, it is the world's largest software maker by revenue, and one of the world's most valuable companies. The word "Microsoft" is a portmanteau of "microcomputer" and "software". Microsoft is ranked No. 30 in the 2018 Fortune 500 rankings of the largest United States corporations by total revenue.

1. "Successfully promote your product offerings"
2. "Emphasize the portions of the chain which command the highest perceived value"
3. "Upgrade your delivery of the lower value products"

Benefits of Supplier Convergence

Supplier convergence, when properly executed, can provide benefits to both companies and customers. The 2004 Microsoft paper by Trowbridge et al. singles out mergers and "bundling" as a particularly positive aspect of supplier convergence. By merging, it says, companies can increase their overall efficiency; that is "the cost of performing multiple business functions simultaneously should prove to be more efficient than performing each business function independently, and therefore drive down overall costs" (Trowbridge et al. 2004). This can also prove beneficial to the customers, as they can often receive a number of services and products at a better value from one company than from several smaller ones. The convergence of information suppliers, such as websites, also offers the public the ability to view and receive information from one source.

Drawbacks of Supplier Convergence

A key drawback to supplier convergence is that one of the main concepts of it is to force smaller companies into mergers or out of business by replacing or threatening to replace them with one large company offering different products or services. Wal-Mart and Borders, two of the superstores cited above, have received criticism for forcing local, independent stores out of business by offering convenience and prices that smaller retail stores would not be able to match. For many, this is a concerning trend, as it means local retail outlets will continue to be replaced with large, multinational firms.

A drawback to supplier convergence from a business's perspective can occur when a company applies convergence in such a way that makes it inconvenient for customers, and thus backfires on the company. For example, Belgian telecom company Belgacom decided in the late 1990s to combine fixed and mobile phone services into a single subscription. The plan failed, however, when customers wanted to keep these services separate and the company had technical difficulties in producing a single bill for two services (Shankar 2003).

Supplier Deconvergence

Although much more rare than supplier convergence, supplier deconvergence occurs when a company offering several services or products breaks into a number of smaller companies specializing in a specific service or product (InterTradeIreland 2002). This may occur as part of a restructuring process for companies, or may be a strategic decision to associate different companies with specific services or products.

Similar Types of Convergence

As noted in the definition above, supplier convergence is not to be confused with product convergence, which occurs when two or more different products "evolve […] over time to the point where they overlap and address the same customer need" (Slywotzky et al. 1999). Supplier convergence does not reduce the number of products or services available, but merely the number of companies offering them.

Another type of convergence is known as complementor convergence. This takes place when two or more companies become allies or form strategic partnerships in order to drive out other competitors. This is not supplier convergence because they are not merging and forming a united line of products, but simply complementing each other with a business partnership (Slywotzky et al. 1999).

Related Research Articles

In commerce, supply-chain management (SCM), the management of the flow of goods and services, involves the movement and storage of raw materials, of work-in-process inventory, and of finished goods from point of origin to point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain. Supply-chain management has been defined as the "design, planning, execution, control, and monitoring of supply-chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally." SCM practice draws heavily from the areas of industrial engineering, systems engineering, operations management, logistics, procurement, information technology, and marketing and strives for an integrated approach. Marketing channels play an important role in supply-chain management. Current research in supply-chain management is concerned with topics related to sustainability and risk management, among others. Some suggest that the “people dimension” of SCM, ethical issues, internal integration, transparency/visibility, and human capital/talent management are topics that have, so far, been underrepresented on the research agenda.

Retail is the process of selling consumer goods or services to customers through multiple channels of distribution to earn a profit. Retailers satisfy demand identified through a supply chain. The term "retailer" is typically applied where a service provider fills the small orders of a large number of individuals, who are end-users, rather than large orders of a small number of wholesale, corporate or government clientele. Shopping generally refers to the act of buying products. Sometimes this is done to obtain final goods, including necessities such as food and clothing; sometimes it takes place as a recreational activity. Recreational shopping often involves window shopping and browsing: it does not always result in a purchase.

The point of sale (POS) or point of purchase (POP) is the time and place where a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice for the customer, and indicates the options for the customer to make payment. It is also the point at which a customer makes a payment to the merchant in exchange for goods or after provision of a service. After receiving payment, the merchant may issue a receipt for the transaction, which is usually printed but can also be dispensed with or sent electronically.

Distribution (marketing) making products available to customers

Distribution is one of the four elements of the marketing mix. Distribution is the process of making a product or service available for the consumer or business user who needs it. This can be done directly by the producer or service provider, or using indirect channels with distributors or intermediaries. The other three elements of the marketing mix are product, pricing, and promotion.

In marketing, value migration is the shifting of value-creating forces. Value migrates from outmoded business models to business designs that are better able to satisfy customers' priorities. Marketing strategy is the art of creating value for the customer. This can only be done by offering a product or service that corresponds to customer needs. In a fast changing business environment, the factors that determine value are constantly changing.

Discounts and allowances are reductions to a basic price of goods or services.

Spark New Zealand Limited, more commonly known Spark, is a New Zealand telecommunications company providing fixed line telephone services, a mobile network, an internet service provider, and a major ICT provider to NZ businesses. Its name in te reo Māori is Kora Aotearoa, and it was formerly known as Telecom New Zealand until it was rebranded with its current name in 2014. It has operated as a publicly traded company since 1990.

A mobile virtual network operator (MVNO) is a wireless communications services provider that does not own the wireless network infrastructure over which it provides services to its customers. An MVNO enters into a business agreement with a mobile network operator to obtain bulk access to network services at wholesale rates, then sets retail prices independently. An MVNO may use its own customer service, billing support systems, marketing, and sales personnel, or it could employ the services of a mobile virtual network enabler (MVNE).

Sprint Corporation is an American telecommunications company that provides wireless services and is an internet service provider, based in Overland Park, Kansas. It is the fourth-largest mobile network operator in the United States and serves 54.5 million customers as of March 2019. The company also offers wireless voice, messaging, and broadband services through its various subsidiaries under the Boost Mobile, Virgin Mobile, and Assurance Wireless brands, and wholesale access to its wireless networks to mobile virtual network operators. In July 2013, a majority of the company was purchased by Japanese telecommunications company SoftBank Group Corp., although the remaining shares of the company continue to trade on the New York Stock Exchange. Sprint uses CDMA, EvDO and 4G LTE networks. Sprint is incorporated in Kansas.

Helio, Inc. a current, and former, mobile virtual network operator (MVNO) using Sprint's network that offered wireless voice, messaging and data products and services to customers in the continental United States beginning on May 2, 2006. Originally a 50/50 joint venture founded in January, 2005 between South Korean wireless operator SK Telecom and American Internet services provider EarthLink, early losses caused EarthLink to stop providing additional funding in fall of 2007. SK Telecom provided the required additional funding to sustain Helio, which was re-organized as Helio LLC, and by January 2008, SK Telecom had assumed an increased ownership stake and with it, operational control of the joint venture. Although SK Telecom publicly pledged to support Helio, SK Telecom entered into talks to sell the company to rival MVNO Virgin Mobile USA. Virgin Mobile USA closed the acquisition of Helio and its 170,000 subscribers on August 22, 2008. Virgin Mobile USA exited the postpaid wireless business and retired the Helio brand on May 25, 2010.

Category management is a retailing and purchasing concept in which the range of products purchased by a business organization or sold by a retailer is broken down into discrete groups of similar or related products; these groups are known as product categories. It is a systematic, disciplined approach to managing a product category as a strategic business unit. The phrase "category management" was coined by Brian F. Harris.

Orange UK was a mobile network operator and internet service provider in the United Kingdom, founded in 1993, and launched to customers on 28 April 1994. It was once a constituent of the FTSE 100 Index but was purchased by France Télécom in 2000, which then adopted the Orange brand for all its other mobile communications activities. Orange UK merged with Deutsche Telekom's T-Mobile UK to form a joint venture, EE in 2010. EE continued to operate the Orange brand until February 2015, when new connections and upgrades on Orange tariffs were withdrawn. Existing Orange customers could continue on their plans until March 2019.

Npower Limited is an electricity generator and supplier of gas and electricity to homes and businesses which is based in the United Kingdom, formerly known as Innogy plc. As Innogy plc it was listed on the London Stock Exchange and was a constituent of the FTSE 100 Index.

Colocation is the act of placing multiple entities within a single location.

Industrial market segmentation is a scheme for categorizing industrial and business customers to guide strategic and tactical decision-making. Government agencies and industry associations use standardized segmentation schemes for statistical surveys. Most businesses create their own segmentation scheme to meet their particular needs. Industrial market segmentation is important in sales and marketing.

Global marketing is “marketing on a worldwide scale reconciling or taking commercial advantage of global operational differences, similarities and opportunities in order to meet global objectives".

A marketing channel is the people, organizations, and activities necessary to transfer the ownership of goods from the point of production to the point of consumption. It is the way products get to the end-user, the consumer; and is also known as a distribution channel. A marketing channel is a useful tool for management, and is crucial to creating an effective and well-planned marketing strategy.

In commerce, customer experience (CX) is the product of an interaction between an organization and a customer over the duration of their relationship. This interaction is made up of three parts: the customer journey, the brand touchpoints the customer interacts with, and the environments the customer experiences during their experience. A good customer experience means that the individual's experience during all points of contact matches the individual's expectations. Gartner asserts the importance of managing the customer's experience.

Iristel is a Canadian provider of Voice over Internet Protocol services, and is designated as a competitive local exchange carrier. The company was founded in 1999, and is headquartered in Markham, Ontario, Canada.

MDNX was a private telecommunications company located in Bracknell and London. In December 2013 MDNX acquired the entire issued share capital of Easynet, a global provider of managed networking, hosting and cloud integration services, from LDC. The combined business went by the name of Easynet. Its CEO was Mark Thompson. The company was acquired by Interoute in September 2015.

References

Slywotzky, A.; et al. (1999). "Mega Patterns: Effecting Multiple Industries for Extended Times". Business eSolutions. Retrieved 2006-06-20.
InterTradeIsland (2002). "All Island Competitiveness: Information & Communications Technology" (PDF). InterTradeIreland Trade and Business Development Body. Archived from the original (PDF) on 2006-03-20. Retrieved 2006-06-20.
Trowbridge, D.; et al. (2004). "Integration Patterns". MSDN Library. Retrieved 2006-06-20.
Shankar, B. (2003). "The Value of Convergence". ITU Telecom World. Retrieved 2006-06-20.

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