Supplier Power Analysis

See Also:
Supplier Power (one of Porter’s Five Forces)

Supplier Power – Analysis

When analyzing a given industry, all of the aforementioned factors regarding Porter a supplier power analysis may not apply. But some, if not many, certainly will. And of the factors that do apply, some may indicate high supplier bargaining power and some may indicate low supplier 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.

Bargain Power of Suppliers is High/Strong if:

• Suppliers are more concentrated than buyers

• Buyer switching costs are high

• Threat of forward integration is high

• Buyer is not price sensitive

• Buyer is uneducated regarding the product

• Buyer purchases product in low volume

• Buyer purchases comprise small portion of supplier sales

• Product is highly differentiated

• Substitutes are unavailable

Supplier Bargain Power is Low/Weak if:

• Buyers are more concentrated than suppliers

• Buyer switching costs are low

• Threat of forward integration is low

• Buyer is price sensitive

• Buyer is well-educated regarding the product

• Buyer purchases product in high volume

• Buyer purchases comprise large portion of supplier sales

• Product is undifferentiated

• Substitutes are available

Supplier Power Interpretation

When conducting Porter’s 5 forces supplier power analysis, low supplier power makes an industry more attractive and increases profit potential for the buyer, while high supplier power makes an industry less attractive and decreases profit potential for the buyer. Supplier power is one of the factors to consider when analyzing the structural environment of an industry using Porter’s 5 forces framework. Supplier power examples include markets for new and rare products.

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