Bargaining Power of Buyers
Bargaining Power of Buyers According to Michael Porter, one of the 5 forces that can cause competition and influence a corporation is buyers/consumers. Without customers a business is nothing. Buyers cause corporations to compete against one another by causing them to lower prices and produce higher qualities of goods/services to consumers. The following are when a buying group has the greatest influence.
When a buying group purchases large volumes
When one buyer purchases most of a supplier’s sales, the importance of that buyer to the supplier is significant. If they stop buying, the supplier takes a dramatic financial hit.
When items purchased are standard
If all items in a market are similar or standardized, it allows a buyer to feel confident in doing business with other suppliers. Suppliers need to lower prices to keep consumers coming to them.
When the buyer faces few switching Costs
If a buyer faces little to no costs to switch to another supplier, there is no reason to stop them from switching if a supplier is offering a product for cheaper. Buyers can roam the market looking for the best deal. Suppliers on the other hand may have large switching costs making it hard to change markets.
When buyers can backward integrate
A buyer may not need to buy from a supplier if they can acquire items from inside the business. An example could be a bakery that requires wheat to make bread. They would backwards integrate by buying a farm with a wheat processor and no longer having the need to buy wheat from a supplier.
When buyers product quality doesn’t matter
Buyers will be price sensitive if the products they are producing do not require great quality. The buyer will go to whoever is the cheapest.
When a buying group purchases large volumes
When one buyer purchases most of a supplier’s sales, the importance of that buyer to the supplier is significant. If they stop buying, the supplier takes a dramatic financial hit.
When items purchased are standard
If all items in a market are similar or standardized, it allows a buyer to feel confident in doing business with other suppliers. Suppliers need to lower prices to keep consumers coming to them.
When the buyer faces few switching Costs
If a buyer faces little to no costs to switch to another supplier, there is no reason to stop them from switching if a supplier is offering a product for cheaper. Buyers can roam the market looking for the best deal. Suppliers on the other hand may have large switching costs making it hard to change markets.
When buyers can backward integrate
A buyer may not need to buy from a supplier if they can acquire items from inside the business. An example could be a bakery that requires wheat to make bread. They would backwards integrate by buying a farm with a wheat processor and no longer having the need to buy wheat from a supplier.
When buyers product quality doesn’t matter
Buyers will be price sensitive if the products they are producing do not require great quality. The buyer will go to whoever is the cheapest.