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Bargaining power of buyers

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Formulação da Estratégias

Copenhagen Business School

4.5 (988 classificações) | 18K alunos inscritos

Curso 2 de 4 no Gestão estratégica e inovaçãoGestão Estratégica e Inovação Programa de cursos integrados

The purpose of this course is to present, analyze and discuss the different facets of business strategy formulation. Emphasizing that strategy can be seen as a unified theme that provides coherence and direction to the actions and decisions of a firm, we will cover a variety of business strategy topics concerned with firm positioning in the context of different markets, industries and locations. At the end of the course, you will be able to: - Identify why a strong strategy is essential for the future business success - Formulate a business strategy that suits the needs and visions of your organization - Explain why managers too often formulate sub-optimal strategies - Extrapolate measures to optimize current business strategies Workload: 2-4 hours per week.

Visualizar o programa do curso

Habilidades que você aprenderá

Strategic Management, Decision-Making, Strategic Thinking, Business Strategy

Avaliações

4.5 (988 classificações)

5 stars
639 ratings
4 stars
259 ratings
3 stars
59 ratings
2 stars
19 ratings
1 star
12 ratings

OO

Mar 13, 2017

Excellent course with rich content and accurate delivery method. The subject was well delivered with simple analysis and pertinent references from real live business environment

LT

Mar 22, 2018

Gives a broad & comprehensive perspective on business environment, challenges & important points to analyse. Pleasant lectures & extremely interestin business videos

Na lição

Industry analysis

Building on the insights generated in the first session, in the second module we explore different industrial organization frameworks and discuss the importance of industry effects on firm performance. Keywords of this module include competition, industry attractiveness, and the ‘Five forces’-framework.

Competition from substitutes3:11

Threat of entry3:38

Rivalry between established competitors2:39

Bargaining power of buyers3:52

Bargaining power of suppliers2:02

Ministrado por

Marcus Møller Larsen
Assistant Professor, Strategic Management and Globalization

Transcrição

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. For example, if you, as a seller, are highly dependent upon the purchases of a single customer, then your bargaining power decreases. Take, for example, the wind turbine industry. In the wind turbine industry, there are large clusters of suppliers of different parts of the wind turbines whose main clients are the large wind turbine manufacturers. Since these suppliers are highly dependent upon their clients, their relative bargaining power is substantially lower. Another way to explain this is the information asymmetry between the buyer and the seller. Now, if the buyer has a low degree of information about the product that he or she is buying, then that person is no real position to start bargaining about the price of the product. In contrast, if a car mechanic decides to buy a used vehicle, then he or she would have the necessary knowledge to judge the real price of the used car, and could, therefore, exploit his or her bargaining power. Finally, if a buyer has the opportunity to vertically integrate the product that he, or she, or the company is buying. In other words, to make the product, instead of buying it on the market, then the bargaining power of the buyer increases. So taken together, it is therefore pertinent to understand the bargaining power of the buyer when judging whether your industry is attractive or not. If the buyer has a lot of bargaining power, then it's more difficult for you as a producer of a certain good to determine the conditions on which the transaction with the buyer should take place. And it almost goes without saying that this will make life much more difficult for the producing firm.

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