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product that they sell is unique and vital to the buyers such that switching costs to the buyer are high.•Search for alternative inputs - If a buyer is able to find substitute inputs; e.g. substitute to electricity – solar energy, charcoal
•Enter into the supplier’s business – buyers enter the suppliers business through acquisition, merger or joint venture, or through backward integration.–For example: Zambeef has effectively neutralized the power of suppliers of meat for their butcheries by having its own ranches which supply meat to their butcheries
Bargaining Power of Buyers•Buyers consist of consumers, users or distributors of a product.•Bargaining power of buyers refers to the ability of buyers to (i) bargain down prices or to (ii) raise the costs of suppliers by demanding better quality and service. This has the effect of squeezing the profits of the supplier.•Examples of firms that this kind of bargaining power include FRA, Shoprite and the giant copper mining companies
Conditions which make a buyer powerful•Product – the product is standard rather than unique•Buyer – there is only one buyer rather than numerous buyers•Suppliers – suppliers are numerous and fragmented•Profit – the profit of a buyer is not threatened by any retaliatory action of supplier•Easy entry into supplier’s business
Strategies against powerful buyers•Alternative markets – Buyers become powerful when they are few, concentrated and buy in large volumes.By looking for other buyers, a firm becomes less dependent on a single buyer•Differentiate the products – make the product unique so that buyers will particularly look for it.
•Increase switching costs to the buyer such that the buyer is not in a position to play off supplying companies against each other in order to force down prices.•This can be done through brand loyalty or investing in assistance to, or developing marketing relations with the customer which will make it difficult for the buyer to switch to another supplier
The Threat of Substitutes•Substitutes are products of different industries or businesses that can potentially satisfy similar customer needs.•Firms in one industry are quite often in close competition with firms in another industry when their respective products satisfy the same need, making them good substitutes to each other.
Threat of substitution can take the following forms:(a) Product-for-product substitution: When a need is satisfied better by another product making an existing product superfluous: as is the case with maize-meal and cassava,rice and potatoes; pain killers (Panado, Aspirin, Aspro); soft drinks (Coke, Fanta, Sprite, Orange).fax and postal service, and the e-mail and the fax.
(b) Generic substitution occurs when different products compete for the same quantum of money; for example furniture manufacturers and retailers compete with suppliers of television sets, cars and holidays for household expenditure.