Leg Zero: The Bargaining Power of Buyers. Porter´s Industry Analysis. Part 1.

eleonoraescalantestrategy 10 Oct 2017 Leave a Comment

Today is the turn of the fourth force of Porter: Bargaining Power of Buyers. porter flower buyers

Let me start today, by sharing with you, what Professor Robert Grant has written in relation to the type of markets in which a company thrives. Companies in an industry operate in two types of markets:

1. In the markets for INPUTS: These companies purchase raw materials, components, and finance and labor services from the suppliers of these factors of production.

2. In the markets for OUTPUTS: These companies sell their products and services to customers (who may be distributors, consumers or other manufacturers).

In both markets, the relative profitability of the two parties (the buyer and the seller) to a transaction depends upon relative economic power or market leadership (from the supplier or the buyer), and that is why we had to understand the concept of market leadership, economic power or influence. Yesterday we explained it in detail.

As I mentioned previously, the analysis of the key determinant power between the producers in an industry and their suppliers is precisely analogous to the analysis of the relationship between producers and their buyers. Correspondingly to the suppliers key determinant factors which we finished yesterday, there are two sets of factors in determining the strength of buying power:

1. Buyers ‘ price sensitivity

2. Relative bargaining power

We will cover today the buyers key determinant factors linked to price sensitivity. Find next a presentation with all the slides prepared for you especially in relation to this theme.

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If you wish to download the presentation in PDF format, click here: Buyers key determinant factors Porter1

Most sources of buyer power apply to consumer as well as to industrial and commercial buyers. In my next post, we will see the key determinant factors related to relative bargaining power. And before the end of the week, it is my aim to start with the last force of porter: Threat of entry.

I leave you with a song from Christopher Cross, released in 1983. I was 13 years old then. Keep on sailing with me please, soon I will be free. Thank you for reading me today.