Michael Porter, a Harvard professor, explained five competitive forces that impact any business’s profitability, attractiveness and market standing.
Your organization operates in a specific environment and industry. Your customers, sellers and clients can positively or negatively impact how you do business. Porter developed the Five Forces Model that defines the five threats or opportunities to your organization. These are seller power, bargaining power of buyers, threat of new entrants, threat of substitutes and competitive brands. Each of these forces can affect the cost and quality of your goods and services.
All five forces have a part to play in determining whether your organization has a competitive advantage over others. However, buyer power is an essential element in the Porter Model, as it can affect your relationship with your customers. Read on to learn more about the bargaining power of customers with examples.
The Bargaining Power Of Buyers Meaning
Buyer power is the customer’s ability to drive the prices of a product or service, compel brands to improve quality and nudge them to offer better customer service or support. Let’s consider the bargaining power of buyers example.
In the real estate sector, customers or investors have the power to drive the prices up or down. The bargaining power of buyers gives them the opportunity to compare prices across websites and brokers. They don’t have to restrict themselves to one price. Market conditions, demand and other factors also play into a buyer’s decision to invest.
Another bargaining power of buyers example is in the tourism industry. Whether it’s hotel bookings or flight tickets, buyer power is such that you can easily browse five different websites for the lowest price and highest quality.
The Bargaining Power Of Buyers Act As A Competitive Force
The power of customers is well-known. It can impact demand and supply of a product and/or a service. If you consider the power of customers relative to other competitive forces such as competing brands, you can understand how it can disrupt your business. For instance, Booking, TripAdvisor and Agoda offer competing prices to travelers. As a customer, you’re bound to pick the offer that gets you a cheaper price, better quality and more amenities.
As a business owner or employee, you have to keep buyer power in mind when making decisions or building a business strategy. It can not only drive your prices down but force you to shift your production line completely. If you have a loyal customer base, you likely have less power over how you change your product or service. The more dedicated the customer base, the lesser your power.
Similarly, for brands like Coca-Cola, they have the flexibility to launch new products, drive prices and modify their branding.
Advertising or marketing strategies also move as per the customer. They have to be tailored and curated for a specific market. Your brand strategy can be flexible as long as your buyers have to face high switching costs when moving to a new brand. If you have something truly unique to offer, you’ll build a stronger and more loyal customer base.
How To Leverage The Bargaining Power Of Buyers
Your business can become more robust if you know how to wield the bargaining power of customers. You can do a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis with enough data to make informed business decisions.
Another way to leverage buyer power is to create a very niche and unique product. Something that’s hard to replicate by your competitors will definitely set you apart.
Maximize Your Network To Recognize Opportunities
The way to sidestep or analyze buyer power to your advantage is to build a robust network. Your network can help you recognize opportunities in terms of customer demand and the right market to tap. Harappa’s Expanding Networks course will teach you how to do that. Identify unique opportunities within your network to build a business strategy. At the same time, you may be able to tap into threats and prepare in advance thanks to your network. Understanding the competition is one of the key advantages of networking. Frameworks such as Types of Networks and Key Networkers will teach you how to build trust-rich relationships for longevity.
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