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.