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. Of the factors that do apply, some may indicate high supplier bargaining power while some may indicate low supplier power. The results will not always be straightforward. Therefore, 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.
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Bargain Power of Suppliers is High/Strong if:
• Suppliers are more concentrated than buyers
• Buyer switching costs are high
• Buyer is not price sensitive
• Threat of forward integration is high
• Buyer purchases product in low volume
• Product is highly differentiated
• Buyer purchases comprise small portion of supplier sales
• Substitutes are unavailable
• Buyer is uneducated regarding the product
Supplier Bargain Power is Low/Weak if:
• Buyers are more concentrated than suppliers
• Buyer switching costs are low
• Buyer is price sensitive
• Threat of forward integration is low
• Buyer purchases product in high volume
• Product is undifferentiated
• Buyer purchases comprise large portion of supplier sales
• Substitutes are available
• Buyer is well-educated regarding the product
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.
As you assess the supplier power, do not neglect other external forces. Download the free External Analysis whitepaper to overcome obstacles and prepare to react to external forces.
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