Which of the following is not descriptive of a high level of bargaining powers of buyers?

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The bargaining power of buyers comprises one of Porter’s five forces that determine the intensity of an industry. The other forces include barriers to entry, industry rivalry, the threat of substitutes and the bargaining power of suppliers.

 The presence of powerful buyers reduces the profit potential in a given industry. Buyers increase competition within an industry by forcing down prices, bargaining for improved quality or more services, and playing competitors against one another. The result of this is diminished industry profitability.

How to assess the power of a buyer group

The power of an industry’s important buyer groups depends upon: 

• Characteristics related to its market situation
• The relative importance of its purchases from the industry as compared to its overall business

The following conditions indicate that a buyer group is powerful: 

• The buyer group is concentrated or purchases large volumes relative to the seller’s sales
• Products purchased from the industry represent a significant percentage of the buyer’s costs or purchases
• Products purchased from the industry are standard or undifferentiated—alternative suppliers are easy to find and competitors are played against each other
• Few switching costs exist (little penalty for moving to another supplier)
• Profits earned are low (greater incentive to reduce purchasing costs)
• Buyers pose a significant threat of backward integration—buyers demand concessions, and may engage in tapered integration (producing some components in-house and purchasing the rest from outside suppliers)
• The industry’s product is not important to the quality of the buyer’s products or services
• The buyer has full information (their knowledge of demand, market prices and supplier costs provide them with leverage)

How to mitigate a strong bargaining power of buyer

It is critical to understand and assess your buyers’ bargaining power. Bargaining is more than just price negotiation; your customer can bargain on the technical, functional or economic aspects of your product/service. You must identify and mitigate your buyers’ bargaining power, regardless of how good your relationship with them is or whether they use their power.