Bargaining Power Of Buyers
Buyer power refers to the ability of customers of the industry to influence the price and terms of purchase.
The competitive strength of buyers can range from strong to weak. The buyers are powerful when:
- They are concentrated and buy in large volume.
- The buyer's purchases are a sizable percentage of the selling industry's total sales.
- The supplying industry is comprised of large numbers of relatively small sellers.
- The item being purchased is sufficiently standardized among sellers that not only can buyers find alternative sellers but also they can switch suppliers at virtually zero cost.
- The buyers pose a threat of integrating backward to make the industry's product.
- The sellers pose little threat of forward integration into the product market of buyers.
- The products are unimportant to the quality of the customer's product or service.
- It is economically feasible for buyers to follow the practice of purchasing the input from several suppliers rather that one.
These factors change with time and firm's choice of buyers-groups should be regarded as an important element in strategic decision-making.