7 Factors affecting Power of Buyers

Bargaining power of buyers means that, there are factors that are influencing buyers control upon your business. It’s called Bargaining Power because it refers to the power to make buyers bargain between your products and your competitors.

What are the types of buyers?

There are two types of buyers; individual buyers in business to customers (B2C) and organizations, companies or accounts in Business to business (B2B).

What are 7 factors affecting Bargaining Power of Buyers in Porter’s Five Forces Model?

1. Buyer Leverage:

Buyer leverage means the power of the buyers, this power determined by the following:

1.1. Buyer concentration and size:

  • To understand what Buyer concentration means, you need to know how many buyers you have. In B2C business; when you push your products to retailers or other intermediaries, let’s suppose you are pushing your product in only 2 big retailers, so they are controlling your business, and they could increase their price, and this is happening because of buyer concentration.
Size of the buyer depends on the economic scale of the buyer and end consumers, its dependent and correlated to each others. The retailers could buy a high quantity of your products due the relationship with them, incentive scheme you offer to them and bonuses. That quantity will last for months which prevent your competitors from putting their products by the same quantity on their stores (due to their budget), this have been illustrated in threat of entrant in porter’s five forces. By increasing the size of the buyer, you have the opportunity to make your products reach first to the end consumer and prevent new entrants from pushing their products too.

1.2. Availability of Substitutes:

If you have substitutes for your products, the opportunity of getting those substitutes to the buyers increases with their competitive investment with pushing their products to retailers or wholesalers (Push Strategy). So you need to push your product first and by high quantity to make a threat of entry for any coming product and as threat of preventing any competitor product to be available in those stores.

1.3. Knowledge of the market:

This depends on the culture of the buyers (end consumers). Are they interested in toothpastes? Different types of cheeses? Are they interested in sports? Are they interested in books? Which types of books they are interested? Are they interested in cars? Which economic scales do they have? The knowledge of the market is including both Marketing Audit (macro environmental analysis and micro environmental analysis), and understanding your consumer behavior to make the right segmentation and targeting strategies for them.

1.4. Backward Integration:

Are the main retailers capable of manufacturing their own products and sell it the end consumers? Example: see Wall Mart stores, they are manufacturing their own products under Wall Mart Brand name, then they became competing with your product which is available at their stores too. So when you push your products in those places, you need to consider a differentiation service to the consumer. That service could be bonuses, trips, loyalty cards, points of purchases (sales promotion techniques).

2. Price Responsiveness:

2.1. Importance of the product:

Are your product is important to the consumer? Is it urgent for their daily life activities? Is your products reflected in the increasing the quality of life for your consumers?

2.2. Profitability of the buyer:

This is depending on the economic scale of the buyers and who you are targeting. You may market a product that target special category of buyers, and let’s say that your product is the highest quality and highest price too. Sometimes the buyers are looking for profitability (that’s why Cost Leadership marketing strategy became the best for them). So is your product profitable for the buyer? Is your product doesn't increase the economic burden to the buyer? Some buyers are looking for a product which is different and unique than any other competitor, then Differentiation marketing strategy is the best marketing strategy for those types of consumers.

2.3. Brand Loyalty and Product Differentiation:

All of the companies are seeking for stable business. This business gained through the brand loyalty and product differentiation. This will make you different in the mind of the customer. But some industries are already do this and don't gain brand loyalty from the consumer. E.g. like some toothpaste, sugar types, generally food products. And this is happened because they were comparing their marketing activities to their competitors, so waiting each others to take a marketing communications step then the competitors do the same. If you want to make your product different in the mind of consumer, make a different not comparable integrated marketing communications Mix that will make your product grow and create everlasting success.

7 Factors affecting Power of Buyers

4 Reasons to consider the Power of Supplier 

Bargaining power of Suppliers is one of the powerful factors in controlling and affecting your business. The management of suppliers needs a high focus and clear strategy. In this article I am explaining the 4 reasons to consider the Power of Supplier. What are the factors affecting Bargaining Power of Suppliers in Porter’s Five Forces Model?

1. Concentration of Suppliers:

Concentration of suppliers means that you have restricted no. of suppliers (may be one supplier), so they become a powerful in their position and they can raise up the price of their services as they want, also their business requests (services, products, bonuses) increases if they (suppliers) are serving one or two of your competitors as you.

2. Availability of Substitutes:

If your substitute is available at that supplier, you should know that they want to make that supplier loyal to them and preventing it from dealing with you.

3. Switching Costs:

The supplier could deal with another company (which may be one of your competitors) because they give them higher price for their services. Even the suppliers need a high relationship marketing and key accounts management because they are capable of controlling your push strategy to wholesalers and other channel of distributions which is going to affect your business.

4. Forward Integration:

Are your suppliers capable to manufacture similar products as your products? If your suppliers know the know-how of manufacturing your products and services, and if they were interested to manufacture similar products as you do, then this will prevent you from the getting raw materials from those suppliers. And this results in decreasing your business growth. Also as results of the forward integration of the suppliers, they may want to manufacture products for you and integrating with your company business at the same time. That’s why it’s called forward integration, which means they are integrating their business with you to share you the profit much more than they supposed to share. Stay tuned!

4 Reasons to consider the Power of Supplier

Threat of substitutes in Porter Five Forces Model

 In this article you will learn about:
  • What is the threat of substitutes in Porter Five Forces Model?
  • Examples of substitutes.
  • What are factors affecting threat of substitute in Porter Five Forces model?

 What is the threat of substitutes in Porter Five Forces Model?

The substitute is any alternative product or method which isn't generated from the same category that your product (or your competitors’ product) is manufactured from.

Examples of substitutes:

  • The substitutes of drugs are healthy vegetables which contain vitamins and proteins to treat some diseases.
  • The substitute of drugs may be the complementary medicine.
  • The substitute of cars is bicycles.
  • The substitute of Air Traveling is Sea Traveling or Roads traveling.
If there is possible substitute for your product, this will affect your business and you should know this before you release your product (Market Penetration) or developing your existing ones (New Product Development).

What are factors affecting threat of substitute in Porter’s Five Forces model?

  1. Price / Performance ratio of the substitute (factor affecting threat of substitute in Porter Five Forces model):

Performance means how the substitute performs (how it works), what about its efficacy, quality, performance as overall. You can know the position of your product versus substitutes through the following matrix:
  1. Willingness to look for substitute (factor affecting threat of substitute in Porter Five Forces model)

This factor depends on the culture of your target segment. You can confirm this by conducting a questionnaire about your product performance, and what is your customers’ opinion about available substitutes, what they don't like in substitute, what they like and you don't have?  Because all of the data you get from the customers can help you in your product development.
  1. Switching cost for buyers (factor affecting threat of substitute in Porter Five Forces model)

Are you customers are complaining from your product's price? Is the price of the substitute is far from your product's price? Is that difference enough to make some customers shift from your product to that substitute?

If you really think you need to Master Marketing Planning then here is your chance to get my eBook: Marketing Planning Guru eBook: Click here

Also, you can enjoy one-to-one Intensive Guerrilla Marketing TrainingCoaching, or Consulting with Mohammed Magdy.

 Click here for one-to-one Intensive Guerrilla Marketing Training.

 Click here for one-to-one Guerrilla Marketing Coaching.

 Click here for one-to-one Guerrilla Marketing Consulting.

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Threat of substitutes in Porter Five Forces Model

Threat of new entrants in Porter Five Forces Model

The nature of human beings is to resist changes when facing something new in their lives. Marketers facing the same issue too. If you created a new product then made good success and it resulted in a good profit for the company you work in, definitely you will face the resistance to change when you see you product  failing due entrance of new products that are taking the market share from you. This is because no one in the world maintained as a star (in B.C.G. Matrix) all of the time. So if you want to maintain your product's success, you should know that you need to observe, predict and analyze the threat of new entrants to your sector, search for their plans, predict each move they could take before they do it.

Factors affecting the threat of new entrants in Porter Five Forces Model:

The threat of entry of new products (new competitors) to your business is affected by many factors which can be summarized in:

  1. Economy of scale :

When the industry that you will market your product/ services is having wide economy of scale, this is helping companies to select different pricing strategies for their products and services, and also it helps them to develop different marketing strategies (Cost leadership, differentiation, or focus marketing strategy) for their products or services.

e.g. in the Car industry, you see a wide range of economic prices, so 'TOYOTA' cars are more economic for most of customers (but their price are matching the middle class of societies) while 'BMW' is matching special class of customers 'High class'. When your market has a wide scale of economy, the new entrants' opportunities will increase.

  1. Product Differentiation / Brand Loyalty:

  • Does your product have unique competitive advantages?
  • Does your product have unique characteristics than any other competitor?
  • Are your customers loyal to your brands? Do they prefer your brand than any other competitor?

When you have a differential advantage than competitor, and your customers are loyal to your brand, the opportunity of new entrants' entry will be minimized. And if the new entrants started their business to compete with your brand, they will lose their success opportunities because you have a differential competitive advantage and customers’ loyalty with your customers.

  1. Switch Cost:

If your product's price in high and provides a high quality service, then any entrant provides the same quality as yours, with less price, then it will affect your business 100%.

But if you provide a product with lower cost and intermediate quality, the opportunities of new entrants with fewer prices will be decreased, because your customers are satisfied with your price and the switching cost possibilities will be decreased.

  1. Government regulations.

  2. Competitor retaliation:

This is very important, because the main competitors are always competing through the retailers by providing special offers and bonus to them to impose their products as the only one available in their stores (Push Strategy). So, if this problem exists in your market, definitely the opportunities of new entrants will be decreased.

  1. Distributing channel access:

If you have a strong relationship with your distributors, you can control the distribution of your competitors; this is called 'Push Strategy'. The push strategy depends on pushing your products to the retailers or wholesales and preventing or minimizing the opportunities of pushing competitors' products to wholesalers or the final channels of distributions to end consumers.

If you really think you need to Master Marketing Planning then here is your chance to get my eBook: Marketing Planning Guru eBook: Click here

Also, you can enjoy one-to-one Intensive Guerrilla Marketing TrainingCoaching, or Consulting with Mohammed Magdy.

 Click here for one-to-one Intensive Guerrilla Marketing Training.

 Click here for one-to-one Guerrilla Marketing Coaching.

 Click here for one-to-one Guerrilla Marketing Consulting.

Stay tuned, Be Guerrilla!

Threat of new entrants in Porter Five Forces Model

Competitive Rivalry in Porter Five Forces Model

If you want to market new product, you select the industry first. And before you start your business in that industry, you should study the nature of competition in that market; so you collect data, analyze and observe the competitors well before you decide to choose that industry.

What are factors affecting competition in Porter’s Five Forces?

The following factors will help you to understand internal competition in the industry you select to market your products in:
  1. Stage of Product life cycle (PLC) of the competing products:

Product Life Cycle (PLC) is one of the factors affecting the competition is Porter’s five forces model. When you study the Product life cycle of the competing products, you may find that there are many competing products which are having different stages of product life cycles (PLC), so this will help you to understand the market you are going to market your product in, and it will help you to know the future opportunities for your products and in identifying the existing threats that could affect your product growth.
  1. The Specialized Production Techniques of the competing products:

Specialized product techniques are one of the factors affecting internal competition is Porter’s five forces model. This will help you to know where your products will be in the future. Are your products produced by same quality that you competitors produced by? Do you have specialized production techniques that make your product differentiated in the market? Is any competitor of yours competitors having any defect in your production techniques? Could you use this weakness as opportunity to release a new product manufactured by your company and can overcome your competitors’ weakness?
  1. Liquidity and financial stability of the competitors:

Liquidity and financial stability of the competitors is one of the factors affecting the competition in Porter’s five forces model, because if your competitor is well cashed and having enough resources, then this tell you how much investments they are going to do in their marketing communications. Liquidity and financial stability also is affecting your company business as it affects your competitors.
  1. Ability to achieve differentiation and brand loyalty:

Brand differentiation and customers’ loyalty are one of factors affecting the competition in porter’s five forces model. Most of the companies are seeking for differentiating their products or services than competitors, that why marketers are spending a time to develop a competitive advantage marketing strategy for their products or services. Some competitors are differentiating themselves through the cost (cost leadership marketing strategy) or differential advantage in their quality (differentiation marketing strategy) or through a focus on special geographical market to target a niche market segment (focus marketing strategy).
  1. Competitor Intention:

Competitors’ intention means that your competitors are considering their products (that are competing with your product) as strategic product for them. So when they give intention to some products, they dedicate resources and make investments in branding, integrated marketing communications, marketing research and became a highly competing product of “A” class priority for you. Also there are companies which are having 100 products, and the product that is competing with your product isn’t considered as strategic product for them, then you can understand that you have a great opportunity to get a high market share from your target segment.
  1. The relative Size Of the competitors:

This is very important, because you may have a main competitors, in which their size is small e.g. if that company doesn't have a good place for its headquarter, doesn't have good resources and facilities. If your company has, this is very important factor, because the customers always looking for the trust and confidence in the company they buy the products from. Also it differs when you want to make a marketing communication with the customers, so your brand will be built fast and your products reputation will last.
  1. Barriers of existing in the industry:
This rule will be a disaster when you decide to enter a market which is already taken by a company or two with very good resources, built their reputations for many years and their customers are loyal to them. So if you want to enter that market, you should have great resources and also, you should be capable of huge investments, otherwise you will easily lose business in that market.

Competitive Rivalry in Porter Five Forces Model



Stakeholders Classification for Marketing Planning

Stakeholders Classification for Marketing Planning

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Stakeholders factors affecting your Marketing Plan

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