Buyer Bargaining Power (one of Porter’s Five Forces)

Buyer Power Definition

Porter’s Five Forces of buyer bargaining power refers to the pressure consumers can exert on businesses to get them to provide higher quality products, better customer service, and lower prices. When analyzing the bargaining power of buyers, conduct the industry analysis from the perspective of the seller. According to Porter’s 5 forces industry analysis framework, buyer power is one of the forces that shape the competitive structure of an industry.

(See the other Porter’s 5 forces of competition.)

The idea is that the bargaining power of buyers in an industry affects the competitive environment for the seller and influences the seller’s ability to achieve profitability. Strong buyers can pressure sellers to lower prices, improve product quality, and offer more and better services. All of these things represent costs to the seller. A strong buyer can make an industry more competitive and decrease profit potential for the seller. On the other hand, a weak buyer, one who is at the mercy of the seller in terms of quality and price, makes an industry less competitive and increases profit potential for the seller. The concept of buyer power Porter created has had a lasting effect in market theory.

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Buyer Power – Determining Factors

Several factors determine Porter’s Five Forces buyer bargaining power. If buyers are more concentrated than sellers – if there are few buyers and many sellers – then buyer power is high. Whereas, if switching costs – the cost of switching from one seller’s product to another seller’s product – are low, the bargain power of buyers is high. If buyers can easily backward integrate – or begin to produce the seller’s product themselves – the bargain power of customers is high. If the consumer is price sensitive and well-educated about the product, then buyer power is high. Then if the customer purchases large volumes of standardized products from the seller, buyer bargaining power is high. If substitute products are available on the market, buyer power is high.

And of course, if the opposite is true for any of these factors, buyer bargaining power is low. For example, low buyer concentration, high switching costs, no threat of backward integration, less price sensitivity, uneducated consumers, consumers that purchase specialized products, and the absence of substitute products all indicate that buyer power is low.

Buyer Power – Analysis

When analyzing a given industry, all of the aforementioned factors regarding Porter’s 5 Forces buyers power may not apply. But some, if not many, certainly will. And of the factors that do apply, some may indicate high buyer bargaining power and some may indicate low buyer bargaining power. The results will not always be straightforward. Therefore, it is necessary to consider the nuances of the analysis and the particular circumstances of the given firm and industry when using these data to evaluate the competitive structure and profit potential of a market.

Buyer Power is High/Strong if:

• Buyers are more concentrated than sellers

• Buyer switching costs are low

• Threat of backward integration is high

• Buyer is price sensitive

• Buyer is well-educated regarding the product

• Undifferentiated product

• Buyer purchases product in high volume

• Substitutes are available

• Buyer purchases comprise large portion of seller sales

Buyer Power is Low/Weak if:

• Buyers are less concentrated than sellers

• Buyer switching costs are high

• Threat of backward integration is low

• Buyer is not price sensitive

• Buyer is uneducated regarding the product

• Highly differentiated product

• Buyer purchases product in low volume

• Substitutes are unavailable

• Buyer purchases comprise small portion of seller sales

Buyer Bargaining Power Interpretation

When conducting Porter’s 5 forces buyer power industry analysis, low buyer bargaining power makes an industry more attractive and increases profit potential for the seller, while high buyer bargaining power makes an industry less attractive and decreases profit potential for the seller. Buyer power is one of the factors to consider when analyzing the structural environment of an industry using Porter’s 5 forces framework. Many respect the buyer power Porter’s five forces.

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buyer bargaining power

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22 Responses to Buyer Bargaining Power (one of Porter’s Five Forces)

  1. John Duffy July 9, 2014 at 1:30 pm #

    This was extremely helpful. You rock.

  2. Aqma Tamizi October 30, 2014 at 10:50 am #

    This help a lot!! thanks!!

  3. linda March 7, 2015 at 5:07 am #

    this is fantastic thank you mwaaaaaaa

  4. kimi July 6, 2015 at 1:32 am #

    Thank you so much!!! keep rocking!

  5. Sara October 15, 2015 at 7:40 am #

    This was SO helpful; thank you so much!!!

  6. Sara November 16, 2015 at 6:06 pm #

    Very very helpful! Thank you so much!

  7. Zainab November 28, 2015 at 1:56 am #

    Thank you. That was very clearly explained.

  8. thanks.very nice December 5, 2015 at 1:56 am #

    Nice

  9. lupyuto December 6, 2015 at 1:30 am #

    A very big nice

  10. Mirwais afghan orguni February 14, 2016 at 1:38 pm #

    Very nice and useful

  11. sara February 27, 2016 at 10:25 am #

    Excellent help; am doing a research on Industry attractiveness

  12. suha May 10, 2016 at 3:39 pm #

    thankyou very much , but i look forward to get
    examples of solutions of the new frims or , famous industries for this threats .

  13. Nsia May 15, 2016 at 7:52 am #

    Thanks alooot

  14. Fredrick.B June 9, 2016 at 11:12 am #

    the lesson is very helpful to me in my assignment …..the question is at what situation the bargaining power of the buyer is very strong and vise versa.

  15. Faiyaz Shaharia July 3, 2016 at 8:21 pm #

    This guidelines saved a lot of my time thanks a million..

  16. mazozo July 20, 2016 at 5:41 pm #

    how does customers own product or service increase bargain power of customers .. i have a presentation friday on this key factor

  17. Elcarine October 24, 2016 at 1:15 am #

    In a company or in a bank, who is the buyer? Is it the borrowers or the depositors?

    thank you. I hope you can help.

  18. laurencie December 28, 2016 at 10:05 am #

    really helpful to my new knowledge and also for my paper’s reference 😀

  19. Solane July 1, 2017 at 9:43 am #

    Simplified. Thanx so much

  20. Gracesobba October 26, 2017 at 3:38 am #

    Thanks very much. This is helping me in my exposé about strategies of entreprise .I gained much.

  21. Felix December 4, 2017 at 1:16 pm #

    Thanks for help to know about buyer power

  22. Gloria December 8, 2017 at 9:31 am #

    Thanks for the explanation. It’s very helpful.

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