Buying pressure exerted by customers/consumers on businesses Show
What is the Bargaining Power of Buyers?The Bargaining Power of Buyers, one of the forces in Porter’s Five Forces Industry Analysis framework, refers to the pressure that customers/consumers can put on businesses to get them to provide higher quality products, better customer service, and/or lower prices. It is important to keep in mind that the bargaining power of buyers analysis is conducted from the perspective of the seller (the company). The bargaining power of buyers would refer to customers/consumers who use the products/services of the company. Determining Factors: Bargaining Power of BuyersBuyer power gives customers/consumers (buyers) the ability to squeeze industry margins by pressuring firms (the suppliers) to reduce prices or increase the quality of services or products offered. There are four major factors to consider when determining the bargaining power of buyers:
When is Bargaining Power of Buyers High/Strong?
When is Bargaining Power of Buyers Low/Weak?
Purpose of Buyer Power Industry AnalysisThe bargaining power of buyers, used in conjunction with the other forces (threat of new entrants, rivalry among existing competitors, bargaining power of suppliers, and threat of substitute products or services), provides an external analysis of an industry and allows companies to:
Buyer power is important in an external analysis of an industry, as it provides an understanding of the profit potential in an industry. High buyer power diminishes the industry’s profitability and lowers the attractiveness of an industry. This may deter new entrants or cause existing firms to make more strategic decisions to improve the profitability of their business. Bargaining Buyer Power in the Airline IndustryTo determine whether buyers face high or low bargaining power in the airline industry, consider the following:
Taking into consideration the four factors that affect buyer power, you can tell that the buyer power in the airline industry is overall high/medium. Therefore, the profit potential in the airline industry is not that high. However, buyer power alone does not determine the overall attractiveness of an industry. Other forces (threat of new entrants, rivalry among existing competitors, bargaining power of suppliers, the threat of substitute products or services) must be taken into consideration to determine an industry’s overall attractiveness. Other ResourcesThank you for reading CFI’s guide on the Bargaining Power of Buyers. To learn more and continue advancing your career, see the following CFI resources:
Which of the following conditions determines whether buyer bargaining power in an industry is weak?Which of the following conditions determines whether buyer bargaining power in an industry is WEAK? There is a surge in buyer demand that creates a "seller's market."
Which one of the following conditions weakens the competitive pressures associated with the threat of entry?Which of the following factors or conditions acts to weaken competitive pressures associated with the threat of entry? the lower the combined profitability of industry participants.
In which one of the following instances is rivalry among competing sellers not more intense?D) Low barriers to entry.
The rivalry among competing sellers tends to be less intense when: C) industry rivals are not particularly aggressive or active in making fresh moves to improve their market standing and business performance.
Which one of the following is not part of a company's Macroenvironment?These are Political, Economical, Social, Technological, Legal and Environmental. Hence, competitive forces are not a part of macro environment.
Which of the following are ways that powerful suppliers are a threat to firms quizlet?What are ways that powerful suppliers are a threat to firms? They can reduce the industry's profit potential, they can force the cost of production to increase, and they can capture part of the economic value created by firms.
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