bargaining power

- [[Michael Porter]] proposed the [[Five Competitive Advantages]] ([[5 Forces Model]]) as a framework for understanding [[competitive strategy]] and [[industrial structure]]. In this model, "bargaining power" are two elements that indicate [[negotiating ability]] with a trading partner and are categorized as follows.

• Bargaining power of the customer (bargaining power of the buyer)
  • This factor indicates the degree of bargaining power a customer has over a company. When a customer’s bargaining power is high, the customer is able to negotiate with the company on prices and terms of trade to obtain better terms. Factors that increase a customer’s bargaining power include
    • An abundance of alternative products and services exist.
    • Customers are well informed about products and services
    • Customers can easily change suppliers without depending on the company
• Bargaining power of the supplier (bargaining power of the seller)
  • This factor indicates the degree of bargaining power a company has over its suppliers. When a supplier’s bargaining power is high, the supplier is able to negotiate with the company on prices and terms of trade to obtain better terms. Factors that increase a supplier’s bargaining power include the following
    • A small number of suppliers and a monopoly or oligopoly in the market
    • Products and services supplied are unique and have few substitutes
    • Supplier has strong brand and technical capabilities with respect to the client company Michael Porter’s concept of bargaining power is an important element when companies analyze their competitive environment and develop strategies. By understanding the balance of bargaining power with customers and suppliers and selecting appropriate strategies, companies can gain competitive advantage and achieve sustainable growth.

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