Porter describes the customer as the buyer, specifically the buyers in markets of output where firms sell goods and services. Sometimes there are situations when the customer is positioned in a way that the firm can be pressured to make decisions that adversely affect profitability. These situations revolve around two areas called buyer’s price sensitivity and the related bargaining power. The buyer’s price sensitivity is defined in four factors that shift the power back and forth between the buyer and seller. The first of these factors is the percentage of spend or percentage of total spend. If a customer only spends a small amount of money with a company their sensitivity is low whereas that sensitivity increases in correlation to
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The first key factor is concisely stated as the “refusal to deal with the other party” (Grand 72). This is a delicate dance of threatening one another, with the desire to keep each other’s business while being on the winning side of the decision. Companies rely on many criteria including their experience and expertise to manage their overall bargaining power. The second factor is the size and concentration of buyers in relation to the number of suppliers. If there are several buyers or customers, then losing one is a small impact compared to a distributor with only a few customers. In this case losing one of only a few customers is a big impact and has significant impacts on the business. The bargaining power in this circumstance falls on the side of the party whose size and concentration is smaller, whether that’s the supplier or the customer. Another factor for bargaining power is the buyer’s level of information. If a customer has more product knowledge and has researched competition and prices, they come in well informed with more bargaining power. The inverse is also true that a uniformed buyer gives bargaining power rot the supplier. The fourth and final point for bargaining power is vertical integration. This is seen at retail through private labels or “house brands” that act as another option to substitute the
The first key factor is concisely stated as the “refusal to deal with the other party” (Grand 72). This is a delicate dance of threatening one another, with the desire to keep each other’s business while being on the winning side of the decision. Companies rely on many criteria including their experience and expertise to manage their overall bargaining power. The second factor is the size and concentration of buyers in relation to the number of suppliers. If there are several buyers or customers, then losing one is a small impact compared to a distributor with only a few customers. In this case losing one of only a few customers is a big impact and has significant impacts on the business. The bargaining power in this circumstance falls on the side of the party whose size and concentration is smaller, whether that’s the supplier or the customer. Another factor for bargaining power is the buyer’s level of information. If a customer has more product knowledge and has researched competition and prices, they come in well informed with more bargaining power. The inverse is also true that a uniformed buyer gives bargaining power rot the supplier. The fourth and final point for bargaining power is vertical integration. This is seen at retail through private labels or “house brands” that act as another option to substitute the