Page 299 - DMGT408DMGT203_Marketing Management

Marketing Management/Essentials of Marketing

Notes 13.1.4 Bargaining Power of Buyers

It is no surprise that buyers in any industry always want more for less. They look for improved
product quality, and additional services at lower prices. Thus, they can affect competition within
an industry. The success of buyers bargaining power grows when (1) the number of large buyers
is quite limited, they are concentrated, or organised, (2) switching costs are favourably low,
(3) threat of backward integration, (4) when the product represents just a small part of buyer’s
cost, and (5) buyers earn low profits and the product involved product cost is an important part
of their costs, then buyers will bargain more determinedly. The greater power of large volume
buyers in an industry makes it less attractive.

13.1.5 Threat of Substitute Products

Those alternative product types that perform essentially the same function are called the
substitutes, such as different cooking oils, laundry products, headache remedies, or postal and
courier services. Availability of substitutes puts a limit on prices companies can charge and the
profit margins are restricted, more so when supply position is such that it exceeds the demand.

Example: More recently, we have seen this happening in the case of cellular phone
services in our country. It is also likely to happen in case of Internet services. Industries of this
type are unattractive when there are many existing or potential substitutes. Increasing
competition and technology upgradation may adversely affect prices and profits.
Analysis of competition reveals a set of primary competitors and the potential ones. The analysis
must ascertain their characteristics with particular focus on their strategies, objectives, and their
strengths and weaknesses.

Note
Forces Impact Reasons
Rivalry among Rivalry is moderately Product differentiation through new
present competitors. high, moderately features and services; customer
favourable. switching costs are low.
Threat of new High threat; moderately Rapid pace of technological change
entrants. unfavourable. may bring new players based on
new technologies; satellites, packet
switching.
Bargaining power of Supplier power is high, Government has control on price of
suppliers. moderately unfavourable. additional bandwidth.
Bargaining power of Buyer power is low; very Even large customers have little
buyers. favourable. power to set terms and conditions in
this oligopolistic industry.
Threat of substitute Threat of substitute is high; New multimedia devices could
products. moderately unfavourable. replace cell phones.
Note: In this hypothetical analysis, only two forces are favourable and three are unfavourable.
The cell phone industry is not particularly favourable under these situations.

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