Porter's Five Forces Of Buyer Bargaining Power

Michael Porter wrote about five forces affecting the profitability and viability of companies. The five forces are existing competitors, new entries into the market, substitute products, bargaining power of customers, and the bargaining power of suppliers. (quickmba)

Porter’s Five Forces is a framework that consists of five competitive forces, threat of entry, power of supplier and buyer, threat of substitution and competitive rivalry. These forces facilitate the analysis of the task environment of an industry or company (Wheelen and Hunger, 2009).

Porter's Five Forces is a simple but powerful tool that consist of 5 different forces to understand the competitiveness of your business environment, and for identifying your strategy's potential profitability. The five forces are degree of rivalry, threat of entry, threat of substitutions, buyer power, and supplier power. Each force is helpful in their own way to get to know your rivals a lot better and get to know what can happen in your market.

The first, Michael Porter’s Five Forces, is based on Harvard Business School’s professor Michael Porter’s research, originally developed in 1979, which states that business is about who is the most profitable, not necessarily, the biggest company. Porter states that there is five components to profitability. These are the buyers, the suppliers, substitute products or services, new competitive entrants, and lastly, existing rivals. According to Porter, these five segments define literally every business industry and are the key to creating a more profitable business. To break down each of these segments a bit more, we will first look at the buyers. In most industries, buyers, or customers, simply want the best price and the best product. The importance of the buyers is dependent on the number of buyers available, the individual importance of each, and the cost to obtain and maintain these buyers, also known as customer acquisition and retention. If your business relies on a few very powerful buyers vs many smaller less powerful buyers, than it would be reasonable to assume they would have much more control over how you would need to operate your

The fourth force that makes up Porter’s Five Forces is the bargaining power of buyers. For MillerCoors specifically, the main buyers are distributors. The distributor controls the price by setting it on profit margins. In addition, distributors are consolidating and increasing in power. For example, in 1970 there were 5,000 distributors; today there are only 2,500 distributors. The distributors are also eliminating new competition. Two examples of this are how MillerCoors puts pressure on itself to carry its own brand and how there are more and more regulations on beer. Because of these reasons, there is more power to current distributors than there was in the past.

This factor in the Porter Five Forces Model refers to the power that those companies supplying products to Target have. In the retail industry, suppliers are often very powerful, as they often provide products to direct competitors of each other. An example of a supplier with a high degree of power is Procter and Gamble (P&G), who sells to many retailers including Target, WalMart, Costco, Safeway and many others. As P&G is a leader in personal care products that are more often sold on price and availability than intensive shopping comparisons (like how plasma TVs are purchased for example) this supplier has major influence over Target and their profitability. This is the reason why this specific aspect of the five forces model is first. Target Corporation

Since most of buyers are small (residential and small business users), they do not have much buyer power. Big

Bargaining power of buyers: Businesses and individuals all fall under the customer's category for this industry. Big customers do get volume discounts and can negotiate prices with sales representatives. However smaller customers have to take what is being offered to them. The only say they have is that they can switch between the players, but due to intense competition, the prices offered are generally the same across the service band.

The Porter's Five Forces method is a simple for comprehending where power is within a business. This is helpful, because it helps you realise both the strength of your current competing situation, and the strength of a position you're debating moving to in the future.

Porter 's five forces framework assesses the competitive pressures a company faces within the industry. The five forces of competitive pressure include: competition from rival sellers, competition from potential new entrants to the industry, competition from producers of substitute products, supplier bargaining power and customer bargaining power. The model helps us determine the strength of competitive pressures and profitability of an industry. [3]

Bargaining power of buyers -Buyers are not in concentrated groups and do not buy in large amounts. However, within the entertainment industry, customers have a lot of alternatives and have no switching cost. However the introduction of DVDs, influenced customers to purchase DVDs since the cost is almost the same cost of rentals. This makes buyer power moderate (Xie & Lin, 2008).

Porter’s five forces analysis is a tool is useful for us to analyse the threat of competition in an industry. Porter believed that the industries were influenced by five forces; competitive rivalry, threat of new entrants, bargaining power of suppliers, bargaining power of buyers, and the threat of substitutes. Analysing these areas can allow you to see attractiveness of the market and find a competitive advantage.

The Porter Five forces analysis helps the marketer to contrast a competitive environment. Porter’s five forces model is comprised of following five completive forces:

The power of buyers is high because this company depends of the businesses and consumers’ demand. This is because they can decide where to buy

Porter’s 5 Forces analysis is a commonly used business theory that identifies the 5 competitive forces of an industry. By identifying and analysing these forces you can determine an industries weaknesses and strengths. Porter recognised the 5 forces in most business markets to be internal rivalry, entry, substitutes and compliments, supplier power and buyer power.