Supplier Power (one of Porter’s Five Forces)

See also:
Supplier Power Analysis
Porter’s Five Forces of Competition
Threat of New Entrants
Buyer Bargaining Power
Threat of Substitutes
Intensity of Rivalry

Supplier Power Definition

In Porter’s five forces, supplier power refers to the pressure suppliers can exert on businesses by raising prices, lowering quality, or reducing availability of their products. When analyzing supplier power, you conduct the industry analysis from the perspective of the industry firms, in this case referred to as the buyers. According to Porter’s 5 forces industry analysis framework, supplier power, or the bargaining power of suppliers, is one of the forces that shape the competitive structure of an industry.

The idea is that the bargaining power of the supplier in an industry affects the competitive environment for the buyer and influences the buyer’s ability to achieve profitability. Strong suppliers can pressure buyers by raising prices, lowering product quality, and reducing product availability. All of these things represent costs to the buyer. Furthermore, a strong supplier can make an industry more competitive and decrease profit potential for the buyer. On the other hand, a weak supplier, one who is at the mercy of the buyer in terms of quality and price, makes an industry less competitive and increases profit potential for the buyer.

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Supplier Power – Determining Factors

The supplier power Porter has studied includes several determining factors. If suppliers are concentrated compared to buyers – there are few suppliers and many buyers – supplier bargaining power is high. Conversely, if buyer switching costs – the cost of switching from one supplier’s product to another supplier’s product – are high, the bargaining power of suppliers is high. If suppliers can easily forward integrate or begin to produce the buyer’s product themselves, then supplier power is high. Supplier power is high if the buyer is not price sensitive and uneducated regarding the product. If the supplier’s product is highly differentiated, then supplier bargaining power is high. The bargaining power of suppliers is high if the buyer does not represent a large portion of the supplier’s sales. If substitute products are unavailable in the marketplace, then supplier power is high.

And of course, if the opposite is true for any of these factors, supplier power is low. For example, low supplier concentration, low switching costs, no threat of forward integration, more buyer price sensitivity, well-educated buyers, buyers that purchase large volumes of standardized products, and the availability of substitute products. Each of the four mentioned factors indicate that the supplier power Porter’s five forces emphasize is low. To help determine the level of supplier power in your industry, start by performing an external analysis. This tool will easily help you determine the level of all of Porter’s Five Forces. Download the free External Analysis whitepaper by clicking here or the image below.

supplier power

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21 Responses to Supplier Power (one of Porter’s Five Forces)

  1. gandhi January 23, 2015 at 6:29 am #

    that’s cool bro, honestly

    • The one and only January 3, 2017 at 8:45 am #

      ItS kEwL BrO

  2. Wonjae Yoon July 12, 2015 at 7:36 pm #

    Thanks bro, it was so much helpful

  3. adam August 9, 2015 at 2:37 am #

    Hi. I am wondering if both bargaining power of the buyer and supplier could be high for the same industry or not? For example: can i say bargaining power of the buyer is high since the consumers do not buy some goods if the price is high and bargaining power of seller is high since the seller do not sell the product if the given price is low for the e-trade (amazon, ebay) websites?
    Thank you.

    • Olivia Durr August 19, 2015 at 12:28 pm #

      Adam, I understand the question, but I don’t understand the example. Could you re-phrase it for me? Sorry! I want to answer accurately!

  4. mangaliso August 19, 2015 at 6:48 am #

    i have been given an assignment at school to name and disuss the four main enviromental forces ,my question is which are those because when searching i find 5 of them which i see them as main coz they are all effective on marketing…..plz help..

    • Olivia Durr August 19, 2015 at 12:26 pm #

      Mangaliso, is your assignment specifically over Porter’s Forces?

  5. Alyssa carlos September 28, 2015 at 8:55 am #

    Pls give an example of company who has a bargaining power as a supplier

  6. Marion November 17, 2015 at 6:01 am #

    Hey, in my case it is pretty different / we have to imagine a company that you could export in an other country and study its implementation strategy.

    So we have chosen to export a Austrian company to slovakia. Our products are focused on Apples : fresh juice, fresh compotes etc…

    But i have some difficulties to understand this power of suppliers.. like we would like to sell them in groceries as well as in our boutique but..

    I don’t know don’t understand it so well..

  7. oliver December 2, 2015 at 1:51 pm #

    how to reduce bargaining power by supplier

  8. Ahmed Danso-Faried May 7, 2016 at 3:01 pm #

    Thank you. This helped me on an industry analysis paper I am writing

  9. Mata Topa October 4, 2016 at 1:07 am #

    Do universities have barganning power of customers and suppliers? Explain and give two examples.

    Thank you

  10. Elcarine October 24, 2016 at 1:01 am #

    Good day. How can you identify if the bargaining power of suppliers and buyers is high or low?
    Plz help us on our case study.

    Thank you.

  11. Jenjen December 2, 2016 at 2:42 am #

    Di ko po magets yung mga factors affecting supplier bargaining power,. Pano po ba yun pakiexplain nga po

  12. Siktirgit Mal January 3, 2017 at 8:48 am #

    I think this was very helpful
    your faithfully,

    Sucuklu Yumurta

  13. okot john November 25, 2017 at 2:38 am #

    how can the porter’s 5 forces be applied in strategic management

  14. Solmaz November 28, 2017 at 6:37 am #

    hi , im doing assignment for advertising company, can you tell me how i can apply supplier power for marketing and advertising company which is doing service mostly?

  15. coherentsynagog77.deviantart.com December 13, 2017 at 1:00 pm #

    I must express my admiration for your kindness supporting people who require
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  16. darley January 8, 2018 at 10:14 am #

    what would you say about the banking industry in relation to potters

  17. linda aikins March 4, 2018 at 1:03 pm #

    I have been given an assignment that how does supplier concentration affect supply in a given market

  18. Emelda Blair Lungu March 29, 2018 at 2:29 am #

    Hi am doing an assignment for soft drink industry btn PepsiCo and coca cola

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