Let's turn to the bargaining power of buyers and
its influence on industry attractiveness.
Since firms eventually need to sell their goods, be it products,
be it services, they need to engage in the transaction with buyers.
In this respect, it is important to understand how much bargaining power
the buyer has vis a vis you as a firm.
Eventually, the valid distribution between you as a seller and the customer,
which can be an individual, it can be companies, it can be governments,
eventually depends on the bargaining power relationship between the two of you.
For example, whenever Vestas sells wind turbines to a government, one
could assume that the buyer has a lot of bargaining power in terms of negotiating,
in terms of sale, in regards to price, delivery, and future service.
However, though, how do you actually understand the bargaining power of buyers?
Here, we need to consider two interrelated factors.
One, the buyers' price sensitivity and two, their relative bargaining power.
First of all, buyer's price sensitivity can be defined as the extent to which
buyers are sensitive to the prices charged by the firm in the given industry.
This, in turn, depends on a number of factors such was whether the product is
differentiated or no.
In other words, do the buyers at all care about whether products carries your brand
instead of the brand of another manufacturer?
Also, is the product essential to the buyer?
For example, think of the pharmaceutical industry as many buyers,
or patients, are highly dependent upon the medicine being produced.
Then, of course, buyers are not really sensitive to the price and
would basically pay whatever they should pay to get hold of the products.
As a result, their bargaining power is low and
the medicine companies can charge high prices for their medicine.
Second of all,
we also need to understand the relative bargaining power of the buyers.