Bargaining power of buyers
3 important questions on Bargaining power of buyers
What are the important indicators of the threat posed by buyers?
Key indicators include:
- Small number of buyers - potent retail firms can affect logistics and may terminate suppliers.
- Undifferentiated products - many alternatives pressure prices/profits.
- Significant cost impact - buyers focus on supply costs, seeking cheaper options.
- Minimal economic profits - buyers push for lowest costs, highest quality.
- Threat of vertical integration - buyers may become rivals, impacting industry sales.
How do powerful buyers influence a firm's revenues?
Powerful buyers can:
- Negotiate prices down - leading to decreased revenues.
- Control demand - impacting supply chain logistics.
- Change suppliers easily - requiring firms to maintain low prices.
- Seek alternatives - focusing on cost at all times.
- Use competition - to leverage better terms and reduce costs.
What factors contribute to buyers becoming rivals in an industry?
Factors include:
- Backward vertical integration - where buyers take on supplier roles.
- Cost sensitivity - buyers’ pressure on pricing influences profitability.
- Entry barriers - low barriers facilitate easier entry for buyers.
- Control over supply chain - buyers' impact on sales dynamics.
- Market share concerns - buyers manipulating sales outcomes in their favor.
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