determine the bargaining power are volume (relative to seller sales), does the product represent a major fraction of the buyer’s costs or purchases, differentiation or standard product, switching costs, buyer profitability (hence their price sensitivity), threat of backward integration, importance to the quality of the final product, and level of knowledge and information of the buyer of industry demand, actual market prices and supplier cost.Some of the elements involved with the power of buyers force are shown in the list below.Bargaining LeverageBuyer concentration versus firm concentration Buyer volume Buyer switching costs relative to firm switching costs Buyer information Ability to backward integrate Substitute products Pull-through Price SensitivityPrice / total purchases Product differences Brand identity Impact on quality / performance Buyers profits Decision makers' incentives Power of suppliersSuppliers can exert their bargaining power over participants by threatening to raise prices or reduce the quality. A supplier group is powerful if they are more concentrated than the industry they sell to, or if the customer group is not important for the suppliers, if the product is an important input to the buyer’s business, or they have built up switching costs, or the supplier group poses a threat of forward integration.Some of the elements involved with the power of suppliers force are shown in the list below.Differentiation of inputs Switching costs of suppliers and firms in the industry Presence of substitute inputs Supplier concentration Importance of volume to supplier Cost relative to total purchases in the industry Impact of inputs on cost or differentiation Threat of forward integration relative to threat of backward integration by firms in the industry Strategy and industry analysis are vital for anyone wishing to compete, and utilizing Michael Porter’s ideas to their fullest extent can be the difference ...
