Sample Essay
Buyers (customers) tend to seek lower prices or higher quality at constant prices, thus forcing down prices and industry profitability.
Buyer power is likely to be high when:
- The product represents а major proportion of the buyers total costs, creating the incentive to seek lower prices,
- The supplying industry comprises а large number of small operators
- The supplying industry operates with high fixed costs,
- The product is undifferentiated and can be replaces by substitutes,
- Switching to an alternative product is relatively simple and is not related to high costs,
- Customers have low margins and are price-sensitive,
- Customers could produce the product themselves,
- The product is not of strategic importance for the customer,
- The customer knows about the production costs of the product
- There is the possibility for the customer integrating backwards.
In the supermarket industry the buyers have а considerable amount of power as the industry fills six of the ten criteria above. The main issue for supermarkets is that grocery shopping takes up а large proportion of household expenditure, which mean customers, are very sensitive to quality and price. Furthermore when it comes down to food there are very close or even identical substitutes to what is being sold at Sainsbury’s in other stores like Wal-Mart and Asda. Obviously each store strives to differentiate it’s product by way of price or quality but at the end of the day switching to an alternative product is relatively simple for consumers to do.
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