Buyers bargaining power: Buyers can exert bargaining power over a suppliers industry by forcing its prices down, by reducing the number of goods they purchase from the industry, or by demanding better quality for the same price. The idea is that the bargaining power of buyers in an industry affects the competitive environment for the seller and influences the seller’s ability to achieve profitability.
The force is stronger when:
- If buyers’ cost of switching to competing brands or substitutes is relatively low, e.g., commonly available at automobile components.
- If the number of buyers is small or if a customer is particularly important to the seller. e.g. seller of nuclear plant equipment.
- If a buyer’s demand is weak and sellers are scrambling to secure additional sales of their products.
- If buyers are well informed about sellers’ products, prices, and costs, e.g. recent rejection of a certain brand when it was sold by the manufacturer at a lower cost to other retailers.
The force is weaker when:
- There are a significant number of buyers.
- Buyers’ switching costs are higher.
- The Number of competitors is very low.
- Substitute products are not readily available.