Bargaining Power of Buyers
Dunstan, Management Consultant, Australia, Member
It is the power that buyers have over the producer of goods. It can be a threat to producers, especially when there are several producers in the market. These are a few examples of how buyers can exercise their bargaining power:
1) If there are few buyers and they purchase large quantities, they can demand lower prices. (Do you think the producer would like to lose such a customer?)
2) If a single buyer purchases the majority of another company's multiple products (Would you give up a customer that generates a large revenue?)
3) If there are several buyers and several producers of the same product, the buyer can easily switch between producers and ask for better pricing (i.e. could be about maintaining market share for the producers)
4) A purchaser buying the same items from several producers. The producer will tend to increase competition amongst producers. (i.e considering the economies of scale).