Page 34 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Unit 2: Structural Change in Retail Environment

2. In most of a customer’s supplies come from a single industry, the customer will be in a Notes
weaker bargaining position than if only a small proportion did so.
3. Whether switching costs are high or low.

4. Whether the products supplied by the industry are standard items and undifferentiated.
Suppliers will try to increase their bargaining power over customers by creating a strong
brand image.

5. A customer who makes low profits will be forced to insist on low prices from suppliers.
6. The treats that customers might take over sources of supply, if suppliers charge too much.
7. The skills of the customers’ might take over sources of supply, if suppliers charge too
much.
8. The skills of the customers’ purchasing staff, or the price-awareness of customers.
9. When product quality is important to the customer, the customer is less likely to be price-
sensitive and so the industry might be more profitable as a consequence.
The bargaining power of suppliers: Just a customers can influence the profitability of an industry by
exerting pressure for higher quality products or lower prices, so too can suppliers influence
profitability by exerting pressure for higher prices. The ability of suppliers to get prices depends
on the following factors:

1. Whether there are just one or two dominant suppliers to the industry able to change
monopoly prices.
2. Whether the suppliers are threatened by new entrants to the market, or by substitute
products.
3. Whether the suppliers have other customers outside the industry, and do not rely on the
industry for the majority of their sales.

4. The importance of supplier’s products to the customer’s business.
5. Whether the supplier has a differentiated product which buyers need to obtain.
6. Whether switching costs for buyers would be high.
The Rivalry Amongst Current Competitors in the Industry: The intensity of competitive rivalry
within an industry will affect profitability of the industry as a whole. Competitive action might
take the from of price competition, advertising battles, sales promotion campaigns, introducing
new product from the market, improving after sales services or providing guarantee or
warranties.

The Technological Environment

Technological conditions determine the development of an organisation by increasing the
efficiency, production and competitiveness. The adaptation to new technology can be in three
ways:
1. Inventing or creating a new product

2. Introducing the products and processes in use
3. Diffusing the technology that cannot be used first
Technological conditions that may have impact in an organisation include:
1. Effectiveness of infrastructure, including roads, ports, airports, rolling stock, hospitals,
education, healthcare and communication

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