Bargaining Power of Customers

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Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes. Customers bargaining power is likely to be high when

  • They buy large volumes; there is a concentration of buyers
  • The supplying industry comprises a 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 pricesensitive
  • Customers could produce the product themselves
  • The product is not of strategical importance for the customer
  • The customer knows about the production costs of the product
  • There is the possibility for the customer integrating backwards.
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