When is bargaining power of buyers high

As a business owner or employee, you have to keep buyer power in mind when making decisions or building a business strategy. It can not only drive your prices down but force you to shift your production line completely. If you have a loyal customer base, you likely have less power over how you change your product or service. The more dedicated the customer base, the lesser your power. Similarly, for brands like Coca-Cola, they have the flexibility to launch new products, drive prices and modify their branding.

Advertising or marketing strategies also move as per the customer. They have to be tailored and curated for a specific market. Your brand strategy can be flexible as long as your buyers have to face high switching costs when moving to a new brand.

Your business can become more robust if you know how to wield the bargaining power of customers. Click here to access your Execution Plan. Not a Lab Member? Leave Us A Review! CFO Training. Facebook Twitter Linkedin Pinterest. Controller Corporate Controller Jr. AF Bureau. The framework for the Five Forces Analysis includes these competitive forces: Competitive Rivalry It determines the degree of competition among existing firms. Threats of Substitutes This is often associated with your product and services.

Consider the impact that the government has or may have on the industry. Consider the industry life cycle stage — earlier stages will be more turbulent. Five forces analysis helps organizations to know the factors affecting profitability during a specific industry.

This also helps to tell decisions relating to whether to enter a selected industry; whether to extend capacity during a specific industry; and developing competitive strategies. What is the bargaining power of buyers? Percentage of Sales Another leverage for a buyer is the amount of business they provide to a producer. Switching Cost If switching costs are low for a buyer, then any dissatisfaction with a producer or a product will cause a loss of business.

Threat of Integration If the customer can integrate or merge suppliers, the customer has greater bargaining power over the prevailing suppliers. Price Sensitivity If the buyers are sensitive to changes in prices and may stop the purchase from producers, then it becomes difficult to ignore their demands.

Available Substitutes If there are many substitutes or alternatives within the market, then the buyers will have tons of options to modify and search around. Bargaining Power is High If Buyers are more concentrated than sellers. The switching costs of the buyer are low. Also, the threat of backward integration is high. The buyer purchases products in bulk high volume.

The buyer is well-educated regarding the product Substitutes are available. The product is not differentiated. Bargaining Power is Low if Buyers are less concentrated than sellers. The switching costs of the buyer are high. The threat of backward integration is low. The buyer is uneducated regarding the product. Substitutes are not available on the market. Buyer purchases comprise a small portion of seller sales. Increasing Switching Costs Focus on creating an environment that your buyers would miss if they switched to a different vendor.

Offering Differentiated Value Customer retention always starts with a good product. Use Pricing Strategies This helps to increase retention. Complimentary Services You can attract customers through your business model by offering after-sale services they find valuable.

Due to the variety of products in the grocery industry, just like in fast food industry, substitutes are plenty and shifting costs are low. However, it is also important to know that the relevance of grocery to buyers is also high.

Grocery products are of absolute necessity for buyers too. What does this mean? If there is inefficiency among retailers and grocery supply chain in terms of competition and prices, buyers may also suffer consequences.

Because any problem in the competition among suppliers and retailers can significantly affect consumers because as earlier mentioned, grocery products are of high importance for consumers. Buyer power is not only exercised by daily consumers too. Retailers also exercise bargaining power of buyer over suppliers and this power depends on retailer buyers and suppliers relationship. Save my name, email, and website in this browser for the next time I comment.

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