5) Factors Affecting or Reflecting Power of Buyers
To what extend do individual buyers have the ability to negotiate low purchase prices with typical firms in this industry? To what extent to
purchase prices differ from those that would prevail in a market with a large number of fragmented buyers in which buyers act as price
takers?
Characterization
(Current)
35. Is buyers’ industry more
concentrated than industry it
purchases from?
36. Do buyers purchase in
large volumes? Does a
buyer’s purchase volume
represent large fraction of
typical seller’s sales revenue?
37. Can buyers find
substitutes for industry’s
product?
38. Do firms in industry make
relationship-specific
investments to support
transactions with specific
buyers?
39. Is price elasticity of
demand of buyer’s product
high or low?
40. Do buyers pose credible
threat of backward
integration?
41. Does product represent
significant fraction of cost in
buyer’s business?
42. Are prices in the marketnegotiated between buyers
and sellers on each individual
transaction or do sellers
“post” a “take-it-or-leave it
price” that applies to all
Higher because the car dealerships are
maintained by how many cars are sold
that represent a fraction of sellers'
revenues.
Future
Outline
Buyer power
factor #1 current High/Medium/Low
2 supporting sentences for my choice
factor #1 future High/Medium/Low
2 supporting sentences for my choice
factor #2 current High/Medium/Low
2 supporting sentences for my choice
factor #2 futrure High/Medium/Low
2 supporting sentences for my choice
The company is Traditional Car Dealerships
Analyze 2 Factors per Force. Analyze each factor based on its current state and the future
trend. Have no more than 2 sentences supporting your assessment in the current state and
2 sentences for the future trend
My choice is Buyer force out of 5 forces for car dealerships
You can choose just 2 factors for buyer force and then, analyze each factor.
Can you also please identify if these are low, medium, or high.
For example,
5 Forces for Professional Sports: buyer power
television networks sports cable systems compete with each other for broadcasting
rights
Leagues have the upper hand in negotiationsIn local television and radio broadcasting contracts as well leagues have the upper
hand
Threat to Profits: Today > Low for buyer power
Another example,
Airframe Manufacturing: Buyer Power
Two kinds of buyers
o Airlines
o Leasing companies
Each order could be of the order of 15% of annual sales revenue
Buyers may cancel orders during economic downturns
Threat to Profits: Today > Medium
Here is one more question,
What is
current state
of the question “Price-value characteristics of substitutes?”
for substitutes & complements? This question is also related to Car dealerships, but
the force is substitutes & complements instead of buyer force. Low, medium, or high
are needed as well.
For example,
Professional Sports: Substitutes & Complements
Teams compete in the local markets with other forms of entertainment
Elasticity of substitution is quite low
Important complements
Television
Sports betting
Airframe Manufacturing: substitues & complemets
small plane manufacturers cut into demand for Boeing and Airbus planes
increase in point to point flights
as demand for air travel increases airlines switching back to larger planes
other forms of transportation could be substitutes
high speed rail
buses
rental cars
Threat to Profits: Today > Medium
