The customer speaks

Sept. 1, 2007

by Stephen Hardy

According to several currently popular consultants, today’s successful business strategies focus on the customer. The customer should be listened to, delighted, pampered, empowered, and otherwise made to feel appreciated and fulfilled. Thus, corporate planners and product developers strive daily to figure out what the customer wants, how they want it, and when they want it-before the competition does so first and/or better.

But what happens when customers’ words say one thing and their actions say something else?

Lightwave polled a segment of its readership (who, like you, are my delighted, pampered, empowered, etc., customers) early this year to learn more about the process by which engineers decide which transceivers and transponders they’ll buy. I’ve discussed some of the results of this survey in this issue’s “Analyst Corner” column on page 39. (The parts I’ve left out-how our respondents view the major transceiver and transponder suppliers-will provide the subject of next month’s column.)

Even if you aren’t involved in the transceiver/transponder market as a buyer or seller, I’m confident you’ll find the results of our survey interesting-and familiar. That’s because the survey results echo those of similar reader polls we’ve conducted previously in other niches of the optical communications market. And, as has been the case in each of these polls, our most recent effort underscores a conundrum I have yet to resolve.

The conundrum is this: Why is it that, despite all the supplier wailing and gnashing of teeth I hear about how little buyers of components, subsystems, and systems are willing to pay for the latest wonder widget, price is never cited in our surveys as the most important criterion when it comes to deciding which widget to specify? It never comes in second, either. Performance always takes first position, reliability or something similar places second, and then maybe cost makes an appearance.

I have theories, of course. First, the survey responses assume a significant degree of performance differentiation among offerings. When that differentiation doesn’t exist-when buyers can reasonably assume that just about every supplier can sell them something that will meet their requirements-then you have a commoditized market and price certainly rules the day.

But while some low-end transceivers can be considered commodities, most are not. The same can be said of most subsystems and systems. So something else must be going on.

As I said, I’ve tried to figure this out with each survey we’ve conducted. It could be that engineers make their selections based on performance and how well the particular product meets their requirements, then hand the process over to a purchasing department that squeezes harder than your average boa constrictor until the chosen supplier says uncle. The presence of a second source certainly improves the grip of the purchasing authority’s vise, which is why many companies pursue their development.

But, of course, second sources aren’t always available. So where else do customers get such leverage? In a down market, such as the one we’re currently escaping, purchasing managers clearly would appear to have an additional advantage. With suppliers hurting for business, customers ought to be able to hold out more successfully for favorable terms and suggest that price is a more important component of their decision than it may be in reality. By this logic, if the market has now become healthier, one would expect to see product sales providing better margins in the near future.

Of course, I could also be fooled by the relative nature of terms such as “low” when applied to optical technology. Certainly companies such as Cisco have made no secret of their opinion that, for example, the price of 10-Gbit/sec transceivers is nowhere near the magic “4× the performance at 2× the cost” benchmark at which they’d like to see it. That hasn’t stopped Cisco from buying such transceivers. We also hear that 40-Gbit/sec technology is too expensive. But if the requirement is there, carriers will pay prices they wouldn’t otherwise. Even at such “inflated” prices, however, there’s no guarantee that every transceiver supplier is successfully recouping their development costs. “Low” could just mean “too low to pay the development price tag.”

Or, heaven forbid, perhaps our survey respondents are just paying lip service to the idea that, as engineers, it’s performance that counts. I’m not ready to leap to that conclusion, however.

Heck, I’m not ready to leap to any conclusion at this point-I don’t honestly know what the answer is. If you’ve got a theory, I’d love to hear it. After all, you’re my customer…

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